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Academics believe the Reserve Bank should take a ‘hold-and-wait’ approach to interest rates, even as some economists predict this week’s national accounts could reveal another quarter of the economy going backwards.

The central bank will hold its monthly board meeting on Tuesday faced with a series of generally subdued economic indicators but some easing in house price pressures.

The RBA's cash rate has been at a record low 1.5 per cent since August.

Timo Henckel, a lecturer at the Australian National University's Research School of Economics, said the economic outlook had gained little direction from the federal budget or overseas developments since the Reserve Bank's last meeting in May.

In that time, Australia's consumer and business confidence has remained modest.
"Recent revisions to economic forecasts by leading financial institutions reveal that another quarter of economic contraction - following the September quarter 2016 - may be on the cards," Dr Henckel said on Monday.

Dr Henckel chairs the ANU's so-called "RBA shadow board", made up of academics, economists and former RBA board members.

"The RBA shadow board continues to advocate a hold-and-wait policy," he said.

The consensus among economists is the economy slowed in the March quarter, growing by just 0.3 per cent after the marked 1.1 per cent rebound in the previous three months.

The economy had contracted by 0.5 per cent in the September quarter.

However, economists at National Australia Bank are expecting a negative 0.1 per cent result for the March quarter based on data already known, while at the ANZ they expect a tiny 0.1 per cent rise, although also concede another contraction is possible.

What is known so far, retail spending - which accounts for around one-third of household consumption - rose modestly in the quarter as wage growth remained at record lows, residential construction work fell and business investment saw only a small rise.

Heading into Wednesday national accounts, company profits for the quarter and business inventories are due on Monday, while international trade and government finance figures are due on Tuesday.

A technical recession is described as two consecutive quarters of negative growth, something that has not happened in Australia since 1991.

Treasury secretary John Fraser warned last week the impact of Cyclone Debbie will reduce GDP growth by about a quarter of a percentage point in the June quarter.

 

By Colin Brinsden
 
Autodesk – 300 X 250 (Exp Dec 31 2017)
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