RBA sees green shoots in resources sector but worries about consumers

transition away from the resources sector but equally cautious about what role shoppers will play.

In the statement accompanying yesterday’s decision, RBA governor Philip Lowe maintained GDP growth would sneak above 3 per cent in coming years as the overhang from weakened mining investment faded and resources exports ramped up.

But consumption growth – the contribution from shoppers – “is expected to remain moderate and broadly in line with incomes”, Dr Lowe said.

“Non-mining investment remains low as a share of GDP and a stronger pick-up would be welcome,” he added.

Muted retail spending figures this year appear to back up his concerns; shoppers are devoting spare cash to mortgages and savings rather than increasing purchases.

Elsewhere signs were broadly positive. Momentum in the global economy continues to build and China’s debtfuelled infrastructure binge, while a potential mediumterm risk, was supporting demand for Australian exports such as iron ore.

Back home, the welcome burst of inflation in the March quarter was “in line with the bank’s expectations”, albeit too soon to ignite paypackets.

Economists said the RBA’s steady-as-she-goes assessment meant rate cuts were unlikely in the short-term.

But the RBA would be looking to regulators such as the Australian Prudential Regulation Authority to help keep high levels of mortgage debt from spiralling out of control.

“The central bank remains concerned by the fact that housing debt is growing faster than household incomes, though it expects APRA’s recent supervisory measures to help address these risks,” National Australia Bank chief markets economist Ivan Colhoun said.

“This concern would argue against further easing, all else equal.”