The Reserve Bank of Australia (RBA) is keeping its powder dry as it left interest rates on hold at 1% this afternoon despite ongoing jitters about a trade war-induced economic slowdown.
The result wasn't unexpected although it probably won't change economists' view that the official cash rate will fall further by the end of this calendar year or early 2020.
But if you thought the RBA's decision held no surprises, you would be wrong. There are two noteworthy things that emerged from Governor Philip Lowe's statement that accompanied the central bank's rate call.
Is the RBA turning optimistic?
The first thing that grabbed me was how hawkish the statement sounded compared to the tone used in previous statements. I wasn't the only one thinking this as the Australian dollar spiked higher to US67.1 cents from around US66.9 cents.
The Aussie hasn't fallen below US67 cents in more than five years and the RBA brought it back from the brink!
Probably not what the RBA was intending as a weak Aussie will help do some of the heavy lifting for our central bank, but Dr Lowe's glass-half-full view of the global economy took many by surprise.
While he acknowledged the trade and technology disputes and the uncertainty that is forcing businesses to par investments, he pointed out that employment and wages growth are tracking in the right direction for most advanced economies.
The statement also highlighted China's stimulatory initiatives to support its economy and the RBA's expectations that things here are getting better.
Bullish statement
"The outlook is being supported by the low level of interest rates, recent tax cuts, ongoing spending on infrastructure, signs of stabilisation in some established housing markets and a brighter outlook for the resources sector," said Dr Lowe.
"The main domestic uncertainty continues to be the outlook for consumption, although a pick-up in growth in household disposable income and a stabilisation of the housing market are expected to support spending."
Our chief central banker is usually very guarded in his comments but these sentences make him sound almost euphoric.
RBA doing the job for the unions
The other thing that surprised me was his subtle barb at the government. I don't remember a statement specifically mentioning public sector wages, but this one did!
Dr Lowe repeated his view that wage growth in Australia is subdued with little upward pressure at the moment. He then went on to say "caps on wages growth are also affecting public-sector pay outcomes across the country. A further gradual lift in wages growth would be a welcome development".
Make no mistake, Dr Lowe is strongly urging the federal government to give public servants a wage increase as he probably believes that this will also trigger the private sector to follow suit.
Given the level of underemployment in Australia, that may be the fastest way to get some badly needed wage inflation back into our economy!
