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 November. 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%, the lowest rate in almost six years
- Low inflation
- Low wage growth
- Conditions in Sydney and Melbourne property markets easing
What's ahead for the Australian economy?
Tim Lawless, Head of Research at CoreLogic, said the RBA’s decision was widely anticipated.
“Considering the diversity of economic conditions, the hold decision comes as no surprise. Labour markets are improving, but wages growth remains sluggish and inflation has softened. It’s a bit harder to gauge the RBA’s view on housing market conditions, with the RBA continuing to call out weakening conditions in Sydney and Melbourne,” said Lawless.
“CoreLogic data to the end of November highlighted that the Sydney market has already recorded a 9.5% decline in values since peaking in July last year and will likely surpass the previous record peak-to-trough decline of 9.6% which was set during the last recession between 1989 and 1991. Despite this weakness in the largest cites, dwelling values in Sydney remain 41% higher than they were five years ago and Melbourne values are still 38% higher, both of which show five year growth rates well in excess of most other capital city markets.”
In a release earlier today Craig James, Chief Economist at Commsec, said the RBA Board expects the next move for the official cash rate to be up, but this may not be for some time.
“The Reserve Bank Board currently believe that the next move in interest rates is more likely to be up, not down. Other countries are normalising monetary policy with similar growth and inflation rates as Australia. So circumstances would certainly need to change markedly for the Board to start altering its view,” said James.
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