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According to analysts at ANZ, there is considerable debate at present about the efficacy of monetary policy, with people citing the weakness of retail spending in the September quarter as clear evidence that it is not working as usual for the Australian economy.

Key Quotes

“There are always lags between policy action and economic reaction. The clear turn in the housing market is the most obvious sign that monetary policy is having an impact. We believe that retail spending will respond, albeit with a lag, and possibly dampened by high debt levels.”

“This week’s data is a great illustration of how hard it is to be forward looking. Evidence of green shoots appeared in the business conditions data, with forward orders in particular quite positive. ANZ’s Labour Market Indicator (LMI) shows a strengthening uptick. But this evidence was overwhelmed by the soft wage and employment data – even though these are amongst some of the most laggard of indicators.”

“To be fair, even if we apply the most positive interpretation of the forward indicators they are a long way from pointing to the sort of turn in the economy that will be required to achieve the RBA’s inflation and full employment objectives. So the somewhat better tone of these indicators is not enough to challenge our expectation that further rate cuts will come in 2020. They do, however, allow the RBA to pause for a period.”