Australia: RBA holds its ground in September
September 3, 2019
At its 3 September monetary policy meeting, the Reserve Bank of Australia (RBA) kept the cash rate unchanged at an all-time low of 1.00%. The RBA cut rates in two consecutive meetings in June and July, and then halted its loosening cycle in August. September’s decision was in line with the expectations of most market analysts. Nevertheless, the RBA’s dovish tone signaled that further monetary policy easing could be required in the coming months.
The decision to hold rates reflected moderate, albeit slowly rising, inflation and subdued economic activity. Inflation rose from 1.3% in Q1 to 1.6% in Q2, moving closer to the Bank’s 2.0%–3.0% target range, while the unemployment rate remained stuck at 5.2% for the fourth month in a row in July—above the 4.5% level the RBA considers to be conducive to faster wage growth and inflation. Moreover, growth in H1 was lower than expected—restrained by falling housing prices, slow disposable income growth and lackluster investment activity—and a contraction in retail sales in July suggests household spending remained weak at the outset of Q3.
Looking forward, the RBA expects headline inflation to fall short of the target range in 2020 and to climb slightly above 2.0% only in 2021. In its communiqué, the Bank highlighted uncertain domestic consumption dynamics and ongoing global trade and technology disputes as the key risks to the outlook. However, it also noted the housing market in Melbourne and Sydney has started to show signs of recovery. Against this backdrop, the Bank noted that “an extended period of low interest rates will be required in Australia” in order to reduce unemployment and bring inflation to within target range.
The next monetary policy meeting is scheduled for 1 October.