Rates likely to be held on strong outlook

Soaring business conditions have increased chances the Reserve Bank will hold rates this year.

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Overall business conditions rose from +8.0 to +12 points in March, according to the National Australia Bank’s Monthly Business Survey, released Tuesday.

NAB chief economist Alan Oster said the index was above the long-run average of +5.0 and at its highest level since 2008.

“The lift in business conditions to these levels not only suggests that Australia is withstanding the uncertainty offshore, but that the recovery in the non-mining sectors of the economy has in fact stepped up a gear this month,” he said in a statement.

Meanwhile, the measure of business confidence lifted to +6 index points in March, from +3 points the previous month.

Mr Oster said that provided some assurance that gains in conditions would be sustained.

“Tighter capacity, good profitability and improving confidence levels all raise the prospects for a ramping up of business spending and employment ahead,” he added.

ANZ economists said the survey showed economic uncertainty of early 2016 was fading and the economy was in solid shape.

They don’t expect the federal election to dampen momentum either.

“While consumers remain cautious given the backdrop of the forthcoming budget and election, the business sector appears unfazed by these concerns,” the ANZ economists said in a statement.

CommSec economist Savanth Sebastian said the improving outlook for Australian businesses increased chances that rates would stay on hold this year.

“Clearly the latest business survey suggests that current interest rate settings are appropriate and that further stimulus is not required,” he said.

JP Morgan economist Ben Jarman agreed, noting the survey’s strong expectations for the labour market.

“This helps the RBA stay on hold, particularly since, taken at face value, several of these survey readings now flag a clear bias to a lower unemployment rate through this year,” Mr Jarman said.