Australia Monetary Policy April 2019

Australia

Australia: RBA holds its ground in April

April 3, 2019

At its 2 April monetary policy meeting, the Reserve Bank of Australia (RBA) left the cash rate unchanged at an all-time low of 1.50%, where it has been for over two years. The move matched market expectations and, for the time being, kept the doors closed to a rate cut which had been projected by several analysts.

Low inflation and weakening economic activity in H2 were behind the Bank’s decision. Inflation moved further below the Bank’s 2.0%–3.0% target in the fourth quarter and wage growth—although rising—remains moderate. Meanwhile, consumers continue to be exposed to countervailing influences: On the one hand, falling real estate prices in the East Coast, together with unremarkable wage growth and a high debt stock, restrain spending; on the other hand, low unemployment rates and solid jobs gains pull in the opposite direction. Meanwhile, robust non-mining business and infrastructure investment continues to sustain activity. Against this backdrop, the Bank projects underlying inflation to be 2.0% in 2019, before accelerating to 2.3% in 2020.

The Reserve Bank of Australia cited weakening global investment intentions and softening growth in China as the main downside risks to the global outlook. The communiqué suggests the RBA will maintain a loose monetary policy stance in the near-term. This, together with a pick-up in wage growth, should gradually bring inflation within the RBA’s target.

FocusEconomics panelists on average expect mild monetary loosening this year, although several panelists expect rates to remain unchanged. Our panelists see the cash rate ending 2019 at 1.40% and 2020 at 1.52%.


Author: Massimo Bassetti, Economist

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Australia Monetary Policy April 2019 0

Note: RBA Cash Rate in %.
Source: Reserve Bank of Australia (RBA).


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