Australia Monetary Policy August 2017

Australia

Australia: RBA holds rates steady in August

August 1, 2017

At its 1 August monetary policy meeting, the Reserve Bank of Australia (RBA) maintained its position on the cash rate, which was held steady at 1.50%, an all-time low after two 25-basis-point rate cuts in 2016. The Board’s decision to keep the cash rate unchanged was widely expected by market analysts and predicated on optimism about future global economic growth as well as healthy domestic conditions, with the exception of dragging private consumption and rising household debt.

The RBA’s recent monetary decision stems from their unchanged outlook of the economy. On the demand side the Bank foresees continued growth in the labor market, however stagnant wage growth will most likely persist. Business investment will continue to chug along and housing construction levels are expected to remain above average. On the other hand, the Bank expressed concern over sluggish consumption stifled by growing household debt and low real wages. On the price side, inflation is expected to gain momentum as economic growth strengthens, despite recently coming in below the Reserve Bank’s target band. However, the Bank’s outlook is at odds with the recent strengthening of the Australian dollar against its U.S. counterpart, which could weigh on inflation expectations for the year.

The overall tone of the meeting was dovish as the Bank seemed hesitant to interfere with the current path of economic growth and wishes to see inflation stabilize around the target before removing some monetary accommodation. The Bank reinserted its forecast figure of 3.0% growth for the medium term, after having removed the statement last month. Overall, the RBA maintained its wait-and-see approach.

FocusEconomics Consensus Forecast panelists see the cash rate remaining low this year and finishing 2017 at 1.42% on average. Our panelists see it rising next year, with an average Consensus of 1.65% by year-end.


Author:, Economist

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