monetary policy and recent economic developments august 2014 teacher and student guide
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Monetary Policy and Recent Economic Developments
August 2014Teacher and Student Guide
Reserve Bank of Australia
Responsible for:•Monetary policy and market operations
•Payments system stability & efficiency
•Financial system stability
•Issuing Australia’s currency notes
•Banker to the government
•Managing foreign exchange reserves
The objectives specified in the Reserve Bank Act (1959) are:
•Stability of the currency
•Maintenance of full employment
•Economic prosperity and welfare of the people of Australia
Reserve Bank Board
•Responsible for monetary and banking policy
•Nine members: Governor, Deputy Governor, Secretary to the Treasury, and six external members
•Meets first Tuesday, except January
How the RBA achieves its objectives
• Inflation targeting regime since 1993, agreed with the government since 1996, and which was most recently updated in 2013
• Objective is to keep annual inflation between 2 and 3 per cent, on average, over the cycle
• CPI inflation is the target, but underlying measures – which abstract from temporary large price increases and decreases – help show future trends in ‘headline’ inflation
• RBA sets the policy interest rate (termed the cash rate – the rate banks charge each other for overnight funds)
• The RBA uses liquidity operations (altering the supply of overnight funds) to ensure the cash rate remains at target
• Changes in the cash rate affect private mortgage and other lending and deposit rates that, along with any exchange rate response, affect the amount of private consumption and investment spending
• Inflation will remain steady and low when total spending is kept close to the level of potential output over time
R BA forecast
20092003199719911985 2015-2
0
2
4
6
%
-2
0
2
4
6
%
Australia’s Trading Partner Growth*Year-average
* Aggregated using tota l export shares
Sources: ABS; CEIC Data; RBA; Thom son Reuters
United States – GDP and Private DemandG D P grow thG D P grow th
20092004 2014-8
-4
0
4
%
-8
-4
0
4
%
Year-ended
Q uarterly
P rivate dem and grow thPrivate dem and grow th
20092004 2014-8
-4
0
4
%
-8
-4
0
4
%
Sources : R BA ; Thom son R euters
United States – Labour MarketC hange in non-farm payro llsC hange in non-farm payro lls
2010 2014-900
-600
-300
0
300
600
’000
-900
-600
-300
0
300
600
’000
13-m onth centredm oving average
6-m onthaverage
U nem ploym ent rate
2010 20143.5
5.0
6.5
8.0
9.5
11.0
%
Source : Thom son R euters
Japan – Consumption and Investment2010 average = 100
C onsum ption
20102006 201492
96
100
104
108
index
N ational accounts
Syntheticconsum ption
Business investm ent
20102006 201460
80
100
120
140
index
C ore dom esticm achinery
orders
Sources: C EIC D ata; R BA; Thom son R euters
Euro Area – Unem ploym ent Rates
20102006 20140
10
20
%
Euro area
G erm any
France
N etherlands
20102006 20140
10
20
%
Spain
Ita ly
Portugal
G reece
Ire land
Source : Thom son R euters
China – Activity IndicatorsYear-ended grow th
Industria l production
10
15
20
%
Fixed asset investm ent
20102006 201410
20
30
% R etail sa les
2010 20140
10
20
%
R eal
N om inal
* R BA estim ates prior to the D ecem ber quarter 2010
Sources: C EIC D ata; R BA
China – Merchandise Trade*Q uarterly
Volum e2005 average = 100
20102006 201450
100
150
200
250
index
Im ports
Exports
Iron ore im ports
20102006 20140
50
100
150
200
M t
From Austra lia
Total
* Seasonally ad justed by R BA
Sources: C E IC D ata ; R BA
2012201020082006 20140
50
100
150
200
250
U S$/t
0
150
300
450
600
750
U S$/t
Steel, Iron Ore and Coking Coal PricesSpot prices
C hinese steel*
Iron ore**
(R H S)
(LH S)
(R H S)
H ard coking coal**
* Average of hot ro lled stee l sheet and stee l rebar prices
** Free on board basis
Sources: B loom berg ; C itigroup ; IH S Energy Publish ing ; M acquarie Bank; R BA
2006199619861976 201640
60
80
100
index
40
60
80
100
index
Terms of Trade2011/12 average = 100
Forecast
Sources: ABS ; R BA
200920041999199419891984 201450
100
150
200
index,yen
0.30
0.60
0.90
1.20
U S$,euro
Australian DollarM onth average
(R H S)
Yen per A$
U S$ per A$
(R H S)
(LH S)
TW I**(LH S)
Euro per A$*
* D eutsche M ark spliced to euro before 1999
** Post-float average = 100
Sources: B loom berg ; R BA; Thom son R euters
2010200620021998 2014-2
0
2
4
6
%
-2
0
2
4
6
%GDP Growth
Total
Q uarterly
(year-ended)
(year-ended)
Excluding resource exports
Sources: ABS; R BA
Export Volumes*Q uarterly
20092004 20140
10
20
$b
Iron ore
C oal
LN G
20092004 20140
10
20
$b
O ther resources
Services
R ural M anufacturing
* 2011/12 prices
Sources: ABS ; BR EE ; R BA
Measures of Private Business InvestmentNominal
0
30
60
90
120
150
0
30
60
90
120
150
14/15
$b Mining Non-mining $b
02/0314/1508/09
Estimates**
08/0902/03
National accounts*Capex survey
* Adjusted for second-hand asset transfers between the private and othersectors; excluding cultivated biological resources
** Estimates are firms’ expected capital expenditure, adjusted for the pastaverage difference between expected and realised spending
*** Error bands are based on the root mean square error of each adjustedestimate compared with the final outcome for investment in each year
Sources: ABS; RBA
Upper and lowererror bands***
11 / 1205 / 0699 / 0093 / 9487 / 8881 / 82 17 / 18-6
-4
-2
0
2
%
-6
-4
-2
0
2
%
Consolidated Budget Balance*Underlying cash balance, per cent of G DP
Forw ard estim ates
RBA grant
* C om bined Austra lian G overnm ent, sta te and territory budget balancesbased on 2014/15 budgets or m id-year review s as availab le ; 2013/14rem ains an estim ate
Sources: Austra lian Treasury; S tate and Territory Treasuries
2011200820052002 20140
3
6
9
12
15
’000
0
3
6
9
12
15
’000
Private Dwelling ApprovalsM onthly
Private detached houses
Tota l*
P rivate higher-density housing*
* Sm oothed lines are ABS trend m easures
Source: ABS
Sydney M elbourne Brisbane Perth Adela ide Austra lia-6
0
6
12
18
%
-6
0
6
12
18
%
Housing Price GrowthAnnualised
2014 to date*
2013:H 2
* D ata are to July
Sources : R BA ; R P D ata-R ism ark
Consumption IndicatorsR etail sa les grow th
Volum eR etail sa les grow th
Volum e
2012201020082006 2014
0
3
6
%
0
3
6
%
Year-ended
Q uarterly
M otor vehicle sales to households*M onthly
2012201020082006 201430
35
40
45
50
’000
30
35
40
45
50
’000
* Seasonally ad justed by the R BA
Sources: ABS ; FC AI/VFAC TS ; R BA
-1 0 1 2 3 ppt
Tax paid andother expenses
Interest paid
O ther incom e
Socia l benefitsreceived
Labour incom e
D isposable incom e(tota l)
Real Household Disposable Income*C ontribution to year-ended grow th
Year to M arch 2014
D ecade average
l l l
* H ousehold sector includes unincorporated enterprises
Sources: ABS ; R BA
Consumer and Business SentimentC onsum er sentim ent
80
100
120
index
80
100
120
index
AN Z-R oy M organ*W estpac and M elbourne Institu te
Business confidenceN et balance, deviation from average since 1989
2012201020082006 2014-40
-20
0
20
index
-40
-20
0
20
index
N AB
* R escaled to have the sam e average as the W -M I index since 1996
Sources: AN Z-R oy M organ; N AB; W estpac and M elbourne Institu te
Private Non-residential Building ConstructionBuild ing approvals
2
4
$b
2
4
$b
Trend*
W ork yet to be donePer cent of G DP
20122010200820062004 20142
4
6
%
2
4
6
%
Excluding health
* 13-period H enderson trend
Sources: ABS ; R BA
Labour Market*
0
1
2
%
0
1
2
%Six-m onth-ended em ploym ent grow th
4
5
6%
4
5
6%
U nem ploym ent rate
201220102008 201464.5
65.0
65.5
%
64.5
65.0
65.5
%
Partic ipation rate
* Sm oothed lines are 13-period H enderson trends
Sources: ABS; R BA
Non-resourceeconom y
Resourceextraction*
Resource-re latedactiv ity**
0
100
200
300
hours
0
100
200
300
hours
Labour Requirem ent of OutputW eekly hours per $m of real G VA in 2012/13
* Includes m inera l and gas extraction , and resource-specificm anufacturing
** Includes investm ent that supports fu ture production of resources asw ell as the provis ion of in term ediate inputs used in the currentproduction of resources
Sources: ABS; R BA
Employment GrowthSem i-annual average , cum ulative change since 2009
2011 2014-200
0
200
400
’000
H ousehold services
M in ing
C onstruction
2011 2014-200
0
200
400
’000
Business services
Public
M anufacturing
O ther*
* Includes agricu lture, forestry & fish ing; e lectric ity, gas, water & wasteservices; reta il trade; transport, posta l & warehousing; and wholesaletrade
Source: ABS
2012201020082006 20142
3
4
5
6
%
2
3
4
5
6
%W age Growth and Unemployment
W age price index
U nem ploym ent ra te
(year-ended grow th)
(quarter average)
Sources: ABS; RBA
2009200419991994 201460
80
100
index
60
80
100
index
Labour Productivity*2009/10 = 100, log scale
Tota l
Excluding m ining and utilities
2.2% pa
2.1% pa
0.9% pa
1.0% pa1.6% pa
2.0% pa
* F igures represent trend grow th during the period show n
Sources: ABS; R BA
2011200820052002 2014-1
0
1
2
3
4
5
%
-1
0
1
2
3
4
5
%Consumer Price Inflation
Year-ended
Q uarterly
Sources: ABS; R BA
2011200820052002 20140
1
2
3
4
5
%
0
1
2
3
4
5
%Measures of Underlying Inflation
W eighted m edian
Exclusion-based*
Trim m ed m ean
(quarterly )Trim m ed m ean
* Excludes fru it, vegetab les, autom otive fue l (and deposit & loanfacilities to June quarter 2011)
Sources: ABS ; R BA
Tradables and Non-tradables Inflation
* Exc luding volatile item s (f ru it, vegetables and au tom otive fuel)and tobacco
** Exc luding depos it & loan fac ilities to June quarter 2011
Sources : ABS ; R BA
20102006200219981994 20140
2
4
6
%
0
2
4
6
%Australian Cash Rate
Source: R BA
20152014201320122011 20161
2
3
%
1
2
3
%
Trimmed Mean Inflation Forecast*Year-ended
70 per cent interval
90 per cent interval
* C onfidence in terva ls re flect R BA forecast errors since 1993
Sources: ABS; R BA
20152014201320122011 20160
1
2
3
4
5
%
0
1
2
3
4
5
%
GDP Growth Forecast*Year-ended
90 per cent in terval
70 per cent in terval
* C onfidence in terva ls re flect R BA forecast errors since 1993
Sources: ABS; R BA
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