RBA tipped to leave rates on hold as executives’ sales expectations slump

The RBA has been widely tipped to leave rates on hold today, with concerns about patchy economic conditions underlined by a new survey from Dun & Bradstreet showing sales expectations for the June quarter has dropped sharply to the lowest point in almost two years.

D&B’s business expectations survey for the June quarter shows the outlook for sales has more than halved, falling 17 index points to 14 points to remain just slightly above 10-year averages.

The index measuring profit expectations also plummeted, falling an ugly 22 index points to just eight points, just above 10-year averages.

Employment expectations, inventory expectations and capital investment expectations were also down sharply, suggesting that sluggish conditions are finally denting business owners’ confidence.

D&B chief Christine Christian says the falls in expectations to long-term averages was always likely to occur as the Government stimulus package was wound down and households reassessed their debt levels.

“The Government stimulus package and the quick upturn in demand for commodities from developing countries following the global crisis allowed Australian firms to enjoy rather robust conditions throughout 2010,” she said in a statement.

“However, as the stimulus package has been unwound and interest rates have started to rise households have pulled back on their spending and began a process of deleveraging. This has resulted in executives adjusting their expectations, bringing them back into line with the long run average.”

The expectations survey provides the RBA with yet another reason to leave rates on hold when it meets this afternoon.

With many parts of the country still in recovery mode, consumer spending still sluggish and the housing market in the doldrums, there are few reasons for the RBA to raise rates and slow the economy further.

Even inflation looks to be under control. TD Securities-Melbourne Institute monthly inflation gauge rose by 0.6% in March or 0.2% excluding volatile items. CommSec economist Craig James says it was the eighth straight month of negligible growth.

“At present inflation remains under control, consumers and businesses are still refusing to borrow, house prices are recording modest falls and the sustained rise in petrol prices will add further pressure to household budgets – further slowing down spending. Added to which the strength of the Australian dollar is continuing to keep the price of imported goods extremely low.

“The Reserve Bank is unlikely to raise interest rates in the near-term given the lack of momentum in the economy.”

But like most economists, James expects the next rate movement will be up, with the timing likely to be the second half of the year.

“The risk for the Reserve Bank is if the higher prices becomes entrenched in the economy – particularly given the sustained improvement in labour market conditions and the potential impact on future wages.”