'Loss of momentum' won't move RBA

by Adam Smith23 Feb 2012

Australia's economy is showing a "loss of momentum" as growth sits below trend, but the slowdown is unlikely to move the RBA in March.

The Westpac - Melbourne Institute Leading Index, which measures the likely pace of economic activity for the next three to nine months, has tracked below its long-term trend. The December index forecast growth at 2.3%, while the long-term trend for the index is 3%.

Westpac senior economist Matthew Hassan said the index remained "subdued" in spite of seeing a slight uptick in December.

"There was a loss of momentum over the second half of last year with the growth pulse heading into 2012 materially below trend," Hassan said.

However, Hassan indicated that the index pointed to "sub-par" growth rather than a sharp decline.

"Growth in the index is still well above the extreme lows seen in 2008 and in the early 90s recession, and the levels seen in mid-cycle slowdowns in 2000-01 and the mid-90s," he said.

In spite of the downturn in the index, Hassan conceded an RBA move in March remained highly unlikely. He pointed to RBA Governor Glenn Stevens' suggestion that economic conditions would have to "weaken materially" in order to precipitate a rate cut. But Hassan predicted that the RBA's easing cycle still had yet to run its course.

"Overall, we expect a further 50bps in easing with the next 25bo cut likely to come in May," he said.

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COMMENTS

  • by sidbroker 5/03/2012 10:48:05 AM

    We need a system where the RBA staff which is what they are are elected by the people. Then and only then will they be accountable to the great people of our nation and get OUT of their Ivory Tower. Currenttly they are a protected species and that is completetly unacceptable!!!