RBA leaves cash rate unchanged at 1.5%
The RBA Board agreed to leave the cash rate on hold at 1.5% at its June meeting; the 20th meeting in a row that the RBA has held rates steady. The last rate movement took place in August 2016 with a 25-basis-point cut.
In his statement following the announcement, RBA governor Philip Lowe noted that recent data on the Australian economy had been consistent with the RBA’s central forecast for GDP growth to pick up and to average a bit above 3% in 2018 and 2019.
“Business conditions are positive and non-mining business investment is increasing. Higher levels of public infrastructure investment are also supporting the economy. Stronger growth in exports is expected. One continuing source of uncertainty is the outlook for household consumption. Household income has been growing slowly and debt levels are high,” he said.
Lowe also noted that the unemployment rate has been little changed at around 5.5% for much of the past year.
“The various forward-looking indicators continue to point to solid growth in employment in the period ahead, with a gradual reduction in the unemployment rate expected. Wages growth remains low,” he said.
“This is likely to continue for a while yet, although the stronger economy should see some lift in wages growth over time. Consistent with this, the rate of wages growth appears to have troughed and there are reports that some employers are finding it more difficult to hire workers with the necessary skills.”
Another factor is that inflation is low and, in Lowe’s view, likely to remain so for some time, reflecting low growth in labour costs and strong competition in retailing.
“A gradual pick-up in inflation is, however, expected as the economy strengthens. The central forecast is for CPI inflation to be a bit above two per cent in 2018,” Lowe continued.
Lowe also commented on the cooling housing market in Australia’s major cities.
“The housing markets in Sydney and Melbourne have slowed. Nationwide measures of housing prices are little changed over the past six months, with prices having recorded falls in some areas. Housing credit growth has slowed over the past year, especially to investors. APRA’s supervisory measures and tighter credit standards have been helpful in containing the build-up of risk in household balance sheets, although the level of household debt remains high. While there may be some further tightening of lending standards, the average mortgage interest rate on outstanding loans is continuing to decline,” he said.
According to the RBA, the low level of interest rates is continuing to support the Australian economy.
“Further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual. Taking account of the available information, the Board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time,” Lowe said.
Source: Kaplan Professional July 2018