At its meeting today, the Board of the Reserve Bank of Australia (RBA) decided to leave the cash rate unchanged at 1.5%.
RBA Governor Philip Lowe’s shortened statement was largely unchanged from June. He pointed to the following economic factors as part of the RBA’s decision:
- Positive business conditions
- Higher levels of investment in public infrastructure
- Higher commodity prices boosting national income
- Strong growth in employment and a significant rise in labour force participation
- An expectation for a decline in the unemployment rate
- Low inflation
- Low wage growth
- Conditions in Sydney and Melbourne property markets easing with prices declining
One of Lowe’s biggest changes to the statement was around the global economic picture, with the new wording, “The global economic expansion is continuing... One uncertainty regarding the global outlook stems from the direction of international trade policy in the United States. There have also been strains in a few emerging market economies, largely for country-specific reasons."
What to expect for the rest of 2018
According to Craig James, Chief Economist at Commsec, “Consumers are generally upbeat about their finances and the outlook for the economy. The problem for retailers is that higher petrol prices are serving to restrain spending.”
“CommSec expects no change to official interest rates until early 2019. The extremely slow lift in wage and goods price growth suggests the first rate hike in the new cycle won’t occur until next year,” said James.
Tim Lawless, Head of Research at CoreLogic, shares James’ view that an official cash rate change may not come for some time.
“Economic conditions remain reasonably stable, housing market growth continues to slow, household debt is at record highs, and inflation remains around the lower end of the RBA target range,” said Lawless.
“With this scenario as a backdrop, the hold decision today from the RBA was widely anticipated. It is looking increasingly as if the cash rate will hold at record lows throughout 2019; this is the view of financial markets where the ASX cash rate yield curve indicates the cash rate will remain on hold until at least November 2019.”
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