RBA is gradually shifting towards a more positive stance – Goldman Sachs

Goldman Sachs’ analysts assess RBA Governor Lowe’s speech delivered yesterday, highlighting key points:

“Bottom line: In a speech today, RBA Governor Phil Lowe outlined his thoughts on the "next chapter" of the Australian economy, expressing the view that the period of global monetary expansion "is now drawing to a close" and that this tightening would, over time, "be expected to flow through to us, just as lower rates have".

The speech also touched on the recent pick up in domestic economic conditions and outlined some risks going forward. Combined with the positive speech yesterday by Assistant Governor Ellis, it is clear the RBA is gradually shifting towards a more positive stance. That said, Dr Lowe stressed the RBA will continue to watch the data evolve, and will be paying particular attention to inflation and wages, non-mining investment and employment.

On Australia's household debt, the Governor noted that "to date, households have been coping reasonably well with the higher debt levels", as evident in the moderate debt servicing ratios and housing loan arrears, although medium term risks still bear close watching.

Described labour market conditions as "unambiguously positive", citing the rising participation rate and full time skew

Noted the improvement in mining jobs, exploration activity and better business sentiment in the mining states

On financial market pricing of the RBA cash rate, the Governor noted that he generally "agrees with the direction", and that although the rate hike may not be "for some time", people "should prepare for higher rates".