The Reserve Bank says uncertainties created by the May budget will take time to resolve.
The federal budget appears to have injected yet another layer of uncertainty for the Reserve Bank to think about.
It means borrowers can draw some comfort from a stable interest rate outlook for sometime, even if they are unsure what the budget will do to their hip pocket.
The minutes of the central bank’s June board meeting released on Tuesday – the first since the budget was handed down in May – note deficits will be smaller over the next two years than predicted in last December’s mid-year budget review.
Beyond that horizon, the budget consolidation is even “more substantial”.
While low interest rates are working to support demand, it is difficult to judge the extent this will offset such consolidation and the substantial decline in mining investment.
“Those uncertainties were likely to take some time to resolve,” the minutes said.
Macquarie Research chief economist Richard Gibbs does not expect the economy will need another rate cut but neither does he expect the cash rate to rise until early 2016.
This would be consistent with comments by RBA assistant governor Christopher Kent on Monday that the unemployment rate is unlikely to decline materially until late 2015, Mr Gibbs said.
The RBA cut the cash rate to an all time low of 2.5 per cent last August.
Such stability should assist a further gradual recovery in consumer confidence, after being whacked by concerns over the budget.
The ANZ-Roy Morgan consumer confidence index, also released on Tuesday, rose by one per cent in the past week and four per cent in the past three.
However, it remains 11 per cent down since the end of April when budget leaks began to emerge.
Economists at ANZ said the pace of recovery will be important in determining the likely impact on consumer spending.
“The bounce we have seen in the past three weeks has not been large enough to make us comfortable,” they said.
It needs to recover another three to five per cent over the next few months to be sure that the non-mining recovery remains on track, they said.
Still, the fact confidence is recovering will be welcome news for the government given its dour performance in opinion polls since the budget.
Treasurer Joe Hockey said the coalition was elected to deliver a strong, purposeful budget to fix the economy.
“That’s exactly what we are doing,” he told Fairfax Radio.