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 statement was largely unchanged from September. He pointed to the following economic factors as part of the RBA’s decision:
- Positive business conditions
- Higher levels of investment in public infrastructure
- Growth in resource exports
- Unemployment rate at 5.3%, the lowest rate in almost 6 years
- An expectation for a decline in the unemployment rate to around 5% over the next couple of years
- Low inflation
- Low wage growth
- Conditions in Sydney and Melbourne property markets easing
One of Lowe’s changes to the statement was about the rate of growth of the Australian economy.
“The latest national accounts confirmed that the Australian economy grew strongly over the past year, with GDP (Gross Domestic Product) increasing by 3.4%,” said Lowe.
What's ahead for the Australian economy?
Tim Lawless, Head of Research at CoreLogic, said the RBA’s decision was widely anticipated and the financial markets do not expect a change in the official cash rate in the short term.
“Cutting the cash rate would likely provide further support to economic conditions, but could also risk refuelling growth in housing prices, as was the case in 2016 when the cash rate was cut by 50 basis points between May and August,” he said.
“Although we expect housing values to drift lower, such low mortgage rates, together with population growth and relatively strong economic conditions should help to keep a floor under housing prices.”
Craig James, Chief Economist at Commsec, agrees a change in cash rate may not come for some time.
“The on-going lift in petrol prices has the potential to crimp consumer spending. At the same time, with unleaded petrol and diesel prices rising, there is upward pressure on transport costs, potentially affecting prices with a high transport component like fresh food. At present CommSec doesn’t expect a change in the cash rate until later in 2019,” James said.
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