The economy is on fire. What does the Reserve Bank do now?

Thursday 2 June 2016
Nic Crowther's picture
Co Editor
The Shaker

On the surface, outgoing Reserve Bank chairman, Glenn Stevens, faces something of a conundrum.  After dropping the cash rate by another 25 base points last month, money markets factored in another drop before the end of the year.

All of a sudden – one day before the RBA was scheduled to meet – it seems that the Australian economy might not be doing so bad after all.



This was something of a turn-up for the books. After all, nothing quite damages confidence quite like an election and, more than most others, the 2016 campaign is one lacking in flair and excitement thanks to the lacklustre profile of the two main candidates.

Yesterday the current Prime Minister and Treasurer would have being cartwheels at the news the Australian economy grew 1.1% during the March quarter – contributing to 3.0% for the year-to-date.



It sounds great. However, Turnbull & Morrison will hope few people dig under the surface of that number to reveal that mining exports were the largest contributors to that number.

While most of the country might be feeling the hangover of the previous boom, the huge investment and upscale of production is certainly paying off for the balance of trade.



The rest of the economy ain’t doing so great. When Mr Stevens et al sit down for tea and biscuits on Tuesday morning, they will likely need to tell the Australian public what the Federal Government really doesn’t want them to hear: we’re still running a two-speed economy and that the last three years has done little to change that.