RBA interest rate decision: Reserve Bank keeps Australian cash rate on hold – as it happened

As Australia debates the need for a rate cut or otherwise, in South Korea the fix is almost certainly in after inflation slumped to zero in the year to August.

The South Korean economy has suffered for months because of the China slowdown, with exports falling for nine months in succession. The usual suspect of weak consumer demand was also at work in keeping prices down, but the less familiar factor of falling food prices thanks to better weather and harvests also weighed.

The Bank of Korea (BOK) revised down economic growth for the June quarter to 1.0% on-quarter from a 1.1% gain reported earlier.

BOK senior deputy governor Yoon Myun-shik said he wasn’t worried about deflation and that inflation would pick up. But the bond market thinks otherwise as the benchmark 10-year yield shed 1.5 basis points to 1.285%, far below the central bank’s policy rate of 1.50%, and indicating rate cuts are coming.

The RBA has some supporters.

Brendan Rynne, KPMG chief economist, says the decision is the correct one:

The RBA was right to keep rates on hold at 1% today and leave any further cuts till later in the year. There was no clear reason to cut again yet and with limited ammunition left, the RBA sensibly kept its powder dry.

Capital Economics says it is among the 30 forecasters that got the rates call right today. Four apparently got it wrong. It says the bank is sounding a little more positive than of late. Amazing what a rise in house prices can do to people.

Marcel Thieliant, senior Australia & New Zealand economist at Capital, says:

The RBA sounded a touch more optimistic when it left interest rates on hold today, but we still think that further rate cuts over the coming months are likely.

Sally Auld at JP Morgan says the decision was as expected and doesn’t see much to suggest the bank will cut in October as some have suggested (notably UBS):

There is nothing in today’s statement which suggests the RBA are keen to cut again anytime soon, despite recent data which suggests another lucklustre quarterly GDP print for 2Q19 and a soggy start to 3Q partial activity data. Accordingly, not much has changed in the commentary; the paragraph on housing has a more upbeat tone, while the narrative around the economy and labour market is largely unchanged from August. As has been the case for a while now, household consumption remains the key domestic risk.

Back in Australia the judgments on Governor Lowe and his fellow board members are rolling in. Stephen Koukoulas thinks he should be hauled before a parliamentary committee to explain his failure to meet the inflation target.

Eleanor Creagh at Saxo thinks there’s not much prospect of indebted consumers coming to the rescue:

Callam Pickering thinks Lowe is fiddling while Rome burns.

Stock markets are still subdued:

The ASX200 is down 2 points, or 0.02%, at 6,577.

Nikkei is up 33 points, or 0.16%, at 20,653.

Shanghai Composite is down 1.5 points at 2,922, a fall of 0.05%.

Hang Seng is down 24.85 points, or 0.1%, at 25,601.

Kospi is down 1 point, or 0.04%, at 1,968.

Brent crude is up 5c to $58.70 a barrel.

Spot gold was down 0.5% at $1,523.26 per ounce.

Evan Lucas at InvestSmart has done a great job in annotating the governor’s statement so you can see the bits that have changed since last month.

He sees the Australian economy growing “from here” so maybe hinting at a more upbeat forecast at some point. He appears more bullish about house prices.

And he also sees inflation coming in below 2% target next year, but sees it above 2% in 2021.

It’s coming soon. The chances of a cut in rates at 2.30 is around 15%, according to CommSec analysts. That won’t please the Kouk.

Evan Lucas of InvestSmart is looking at what the RBA might say in its statement after the meeting. He notes that the familiar message of recent months might no longer contain the line about struggling house prices.

We’ll have all the reaction to the decision and statement from 2.30pm.

There has been a lot of debate – as ever – about what the RBA should do today although the consensus is it won’t cut the rate.

The outspoken economist Stephen Koukoulas has left no doubt that he is in favour of a rate cut – preferably a whopping big one to reduce the cash rate to 0.25% and boost growth. But he doesn’t think the RBA will and he’s not afraid to let people know.

Writing for Yahoo Finance he says:

To boost growth, Dr Lowe could (should) cut interest rates to near zero but he has a preference to have higher unemployment and lower living standards than needed as he maintains his crusade against house prices and household debt.

Without policy action by the government and the RBA, the economy is likely to remain a chronic under-performer.

Having said that he has GDP to hit 0.7% for Q2 tomorrow meaning an annual growth of 1.6%. That’s quite a lot more optimistic than some forecasters.

A bit more than an hour before the RBA decision, which we’ll bring to you as soon as it happens.

Economists at JP Morgan have been crunching through the July retail sales data and conclude that any consumer-led recovery in the economy in the third quarter still seems a bit of a stretch. They note that shoppers cut back despite two successive rate cuts so they are unlikely to suddenly start spending now.

The RBA cut in early June and July, and July was the first month where it was technically possible for households to have received the 2018/19 low and middle income tax offset. It is still very early days in tracking the disposable income transmission, but the July data represent an unimpressive start.

Most categories were soft in July, with food sales (+0.3%m/m) boosting the headline measure, while clothing/footwear (-1.0%m/m), “other” retailing (-0.4%m/m), cafes/restaurants (-0.6%m/m) and department store sales (-0.2%m/m) were broadly soft. Household goods retailing managed to tread water (-0.1%m/m) but has still had a lackluster run of late.

I was just thinking there should really be an “I love charts” hashtag. And of course there is but it doesn’t get much love on Twitter.

But while I’m at it, I also like this chart from Martin North at Digital Finance Analytics @DFA_Analyst with its implication that there may be trouble ahead for the aforementioned balance of payments ...

I love this chart. Thanks to @JFosterFM

The Chinese markets have opened but they are flat like the others this lunchtime.

Shanghai Composite is down 2 points at 2,922, a fall of 0.07%.

The Hang Seng is up 63 points, or 0.25%, at 25,689.

The ASX200 is up 5 points, or 0.1%, at 6,586.

Nikkei is up 14 points, or 0.07%, at 20,637.

Kospi is up 6 points, or 0.3%, at 1,975.

Cafes and restaurants performed especially badly to drag down retail sales, the ABS says.

“There were falls in four of the six industries and six of the eight states and territories in July,” said Ben James, director of quarterly economy wide surveys. “Cafes, restaurants and takeaway services (-0.6%) led the falls. There were also falls in clothing, footwear and personal accessory retailing (-1.0%), other retailing (-0.4%), and department stores (-0.2%). Food retailing (0.3 %), and household goods retailing (0.1%) rose this month.”

The only states and territories that saw a rise were Western Australia (0.6%) and the Northern Territory (0.3%).

The Chinese yuan has been set weaker once again by the People’s Bank.

The currency is now notionally fixed at 7.0884 to the US dollar, as opposed to 7.0884 yesterday. But it’s likely to drift lower still because it finished the trading day at 7.1717 on Monday (the higher the number the weaker the yuan).

Stock markets have stabilised a bit and overall are flat across the region. The ASX200 is off four points at 6,575, while the Nikkei and the Kospi are up a smidgen. Korean investors might be encouraged by the prospect of another cut in rates after that zero inflation reading.

Otherwise, the markets calm is partly because of the lack of the usual lead from the US, where markets were closed yesterday. And Reuters reports that investors will also be awaiting a manufacturing survey from the US later today for signs of how the world’s biggest economy is going.

“Although US manufacturing activity has been slowing in recent months, the Institute of Supply management index has so far stayed above 50, which separates contraction and growth,” Reuters says.

The significance is summed up by Hiroyuki Ueno, senior strategist at Sumitomo Mitsui Trust Asset Management in Tokyo:

We have so many problems around the world, starting from the US-China trade war and Brexit. But investors appear to be getting used to be exposed to them. No one really thinks Washington and Beijing will solve the issues. But as long as the US economy keeps going, stock prices will have limited downside.

As I’ve just mentioned, the Coalition is in full damage-limitation mode before the possibly terrible GDP figures tomorrow.

My esteemed colleague Greg Jericho has taken his usual forensic look at the state of play and asks why we should be expected to believe the government’s claims that a better economy is just around the corner when it’s been in charge for six years ...

Here’s the full piece:

Good morning and welcome to our business live blog. It looks set to be a busy day in economics and finance in Australia and around the world, beginning with another slew of data on the Australian economy at 11.30 this morning, followed by the Reserve Bank’s latest monthly verdict on the cash rate at 2.30 this afternoon.

• The key background in Australia is that there is increasing pessimism around tomorrow’s GDP number. A lot of data has pointed to a very low print tomorrow, with the latest coming yesterday. In case you missed it, a mixed business indicator survey showed profits and wages were solid, up 4% on the back of strong earnings in the mining sector in the June quarter, but inventories were down a surprising 0.9%.
• Economists at JP Morgan and UBS see the GDP quarterly number coming in 0.4% tomorrow but some have begun to revise that downwards. One analyst at Credit Suisse reckons the inventories were so bad yesterday that the GDP figure will be -0.6%.
• On interest rates nearly everyone expects the RBA to hold rates at 1% today – but the expectation is already there for cuts in October and maybe February next year. We might learn more from the wording of the governor Philip Lowe’s statement later on.
• On the market, the ASX200 is expected to open down about 15 points or 0.23% this morning, when trading gets under way in about 30 minutes. The US market was closed yesterday for Labor day but the FTSE100 was up 1% helped by the weak pound.
  
• The Aussie dollar is close to a 10-year low at $67.18c.
  
• On the politics side, the Coalition will be hoping that the GDP number is not too ugly or it is in for a tough few weeks explaining what happened to the economy under its watch. Scott Morrison has said he expects tomorrow’s number to be “soft”. It might blame uncertainty surrounding the election, and talk up a recovery in the third quarter.
• The Labor leader, Anthony Albanese, has already been out there, telling a doorstop in Sydney that the government only has a political strategy and doesn’t have a plan to fix the economy.
  
  

Anyway, on with the program.