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 October. 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
Lowe's changes to the statement focused on projections for the Australian economy. “The forecasts for economic growth in 2018 and 2019 have been revised up a little. The central scenario is for GDP growth to average around 3.5% over these two years, before slowing in 2020 due to slower growth in exports of resources.”
“The outlook for the labour market remains positive. With the economy growing above trend, a further reduction in the unemployment rate is expected to around 4.75% in 2020,” said Lowe. “Inflation is expected to pick up over the next couple of years, with the pick-up likely to be gradual. The central scenario is for inflation to be 2.25% in 2019 and a bit higher in the following year.”
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.
“Despite relatively strong economic conditions, with GDP (gross domestic product) running at a six year high and unemployment at a six year low, the recent core inflation reading was tracking at 1.7% and wages growth remains subdued. The ongoing fall in Australian dwelling values is also likely to be weighing more heavily on the RBA’s deliberations, with CoreLogic indices showing the housing market downturn is becoming more broad based, with most regions around Australia showing a clear slowdown in growth rates, if not declining values,” he said.
“With the cash rate remaining on hold for the foreseeable future and funding cost pressures easing, we are likely to see mortgage rates remain close to their current levels which should help to keep a floor under housing demand, especially with housing affordability now improving and labour markets strengthening.”
Craig James, Chief Economist at Commsec, agrees a change in cash rate may not come for some time.
“CommSec expects no change in the official cash rate until late 2019,” James said.
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