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 said in the statement released after the meeting that recent data on the Australian economy has been “consistent with the Bank's central forecast for GDP growth to pick up, to average a bit above 3% in 2018 and 2019”. The Australian economy grew by 2.4% over 2017.
“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,” the statement said.
“Inflation is low and is 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 2% in 2018.”
The next CPI inflation data release from the Australian Bureau of Statistics is expected 25 July.
The Australian dollar was trading around 76.36 US cents after the RBA made its cash rate announcement at 2:30p.m. (Sydney/Melbourne time), compared with 76.50 US cents earlier in the day.
“The Australian dollar remains within the range that it has been in over the past two years,” the RBA statement said. An appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast.
The RBA noted that “nationwide measures of housing prices are little changed over the past six months, with prices having recorded falls in some areas”.
Property data provider CoreLogic’s Head of Research Tim Lawless said in a statement that “from a housing market perspective, a stable rate environment is positive”.
Rates steady since August 2016
The last time the cash rate changed was the 0.25 percentage points cut to 1.5% in August 2016.
Before the announcement today, there was a 0% expectation of an increase to 1.75%, according to the RBA Rate Indicator on the Australian Securities Exchange (ASX) website.
The indicator calculates a percentage probability of an RBA interest rate change based on the market determined prices in the ASX 30 Day Interbank Cash Rate Futures.
CommBank economists said in a note that market pricing suggests the first RBA cash rate increase could be in 2019.
"The next move in interest rates is likely to be higher and we have an interest rate rise in our forecasts for February 2019," CommBank said.
"However developments this year, including a tightening in lending standards, a soft patch in the global economy, and higher short term interest rates mean that the RBA is likely to be even more patient when thinking about the timing of the first rate hike."
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