612 ABC Radio Brisbane with Steve Austin.
Well the Reserve Bank has left interest rates or cash rate on hold, citing the recent pickup in inflation, the I-word. So how healthy is Australia’s economy? Well Peta Tilse is Head of Funds Management at NatGen. I asked her about the RBA’s decision first of all.
Steve, essentially they’re on hold. Just with the language that was used, it’s actually possible that we mightn’t get any more interest rate cut. Like 3.6% as a cash rate might be what they call the terminal rate, the last sort of bit of movement. Are you telling me that, particularly
I’m interested in homeowners and people have mortgages obviously. I mean that’s it guys, this is as good as it gets. We’re pretty close to it. So the main reason for all of this is inflation and that they’ve been watching that data closely. They’ve been taking, they say they take the signals from the inflation data and they actually released as well yesterday the statement of monetary policy which is kind of their quarterly outlook I guess on the Australian economy and where they see various data points moving in the future.
They did point to that some of the things that came through in our last inflation print in their mind were temporary. So things like those electricity rebates we’ve all been getting that they’ve sort of washed through.
I mean like electricity for instance for the quarter was up 18% because of that and annualised it’s about 12%. So they’re very significant sort of numbers but Michelle Bullock called that a blip so to speak. Although in my mind what that showed was that the so-called electricity subsidy was just disguising the true cost of electricity. Yes absolutely.
The band aid I think as we’vesort of been calling it to get us through. All right Michelle Bullock said this. Keeping inflation low and stable enables strong and sustainable employment growth. Is she saying that’s what
we’re focused on in the future? What’s she saying there Peta Tilse?
Yes absolutely. So there’s been this kind of in the markets they’ve been because they’re always I mean they’re focused on price stability and full employment. So it’s a trade-off. So do you sort of go hard on inflation or do you go hard to get to full employment?
And I guess we’re kind of at that point where we’re getting that soft landing we need hopefully if we can keep inflation in that sort of two to three percent band which is their goal to keep that price stability. In the statement of monetary policy though that three their sort of forecasts for inflation have risen ever so slightly.
So we should be seeing in the incoming quarters that rate rising to about I think it’s 3.1 or 3.2 percent but just marginally above. So they will be watching that like a hawk so to speak. Let me play this.
When combined with the fact that we hadn’t raised rates particularly high this could mean that less easing in monetary policy is needed in this episode compared to previous ones. So that’s what you’re referring to Peta Tilse?
Yes that’s right. And the other thing too Steve is when you do have a higher inflation rate let’s call it just roughly speaking okay we’ve got a cash rate of 3.6 percent and let’s say the inflation rate’s 3.6 minus 3 percent. The real cash rate is about 0.6 if you follow. So basically if you strip out the inflation from the actual rate just roughly speaking it’s actually kind of stimulatory.
Okay so really what does this say then about the underlying fundamentals of the Australian economy? Is it healthy? Is it strong?
Is it weak? What is it Peta Tilse? I guess we’re kind of in that what they’d call the soft landing phase. So we’re okay at this stage. Inflation is what they’re watching as we’ve said so anything sort of above that 3 percent they’ll be watching like a hawk.
Growth is positive it’s at 2 percent that’s kind of trend but you know you’ve got to temper that with what’s going on with population growth and the unemployment rate while it did blip up to four and a half percent last month you know it’s not bad in the scheme of things like we’re not at five and a half percent put it that way. So we’re okay.
Could be better, could be worse, we’re okay is how I would describe it.
Peta Tilse I’ll leave it there thank you very much for your time once again.
Pleasure Steve.
Peta Tilse head of funds management at NatGen.