Sydney Australia skyline

Australia Monetary Policy July 2018

Australia: RBA continues to hold fire in July

At its 3 July monetary policy meeting, the Reserve Bank of Australia (RBA) left the cash rate unchanged at its all-time low of 1.50%, where it has been since August 2016. The move was expected by market analysts.

The Bank’s decision was again underpinned by low inflationary pressures. Inflation remained marginally below the Bank’s 2.0%–3.0% target range in Q1, coming in at 1.9%. Moderate wage growth and strong competition in retailing kept price pressures in check. Although labor market dynamics are positive and labor force participation continues to grow, wage growth has remained modest. However, it could strengthen somewhat going forward, as skills shortages are reported to be growing, and the vacancy rate is high. The RBA expects inflation to rise slightly above 2.0% in 2018.

The Bank reaffirmed, furthermore, that the economy is on track to grow slightly above 3.0% on average in 2018 and 2019, consistent with Q1’s robust 3.1% year-on-year expansion. The positive economic performance is seen being underpinned by growing non-mining business investment, a scaling-up of public infrastructure spending and robust export growth. On the other hand, elevated debt levels and lackluster wage growth will limit the expansion in private consumption. All in all, the pick-up in economic activity will feed through to stronger inflationary pressures only gradually.

The Bank highlighted several downside risks in the communiqué in July: some intensification in inflation globally, uncertainty regarding trade policies in the U.S. and increasing risks in the Chinese financial sector. Nonetheless, the statement was largely devoid of forward guidance. Given that wage growth is expected to eventually gain momentum and inflation should move back within the target range this year, the RBA will likely hike rates gradually in the future, although the timeframe of monetary tightening remains unclear.

Free sample report

Access essential information in the shortest time possible. FocusEconomics provide hundreds of consensus forecast reports from the most reputable economic research authorities in the world.
Close Left Media Arrows Left Media Circles Right Media Arrows Right Media Circles Arrow Quote Wave Address Email Telephone Man in front of screen with line chart Document with bar chart and magnifying glass Application window with bar chart Target with arrow Line Chart Stopwatch Globe with arrows Document with bar chart in front of screen Bar chart with magnifying glass and dollar sign Lightbulb Document with bookmark Laptop with download icon Calendar Icon Nav Menu Arrow Arrow Right Long Icon Arrow Right Icon Chevron Right Icon Chevron Left Icon Briefcase Icon Linkedin In Icon Full Linkedin Icon Filter Facebook Linkedin Twitter Pinterest