Australia: RBA holds rates steady in September
September 5, 2017
At its 5 September monetary policy meeting, the Reserve Bank of Australia (RBA) maintained its position on the cash rate, holding it steady at an all-time low of 1.50%, 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. It was predicated on optimism about future global economic growth, as well as healthy domestic conditions, with the exception of lagging private consumption and rising household debt.
The RBA’s recent monetary decision stems from its unchanged outlook of the economy. The RBA foresees that the labor market and non-mining investment will continue to improve. However, it also noted that wage growth remains subdued, which together with a stronger Australian dollar, will continue to weigh on the inflation outlook. A continued appreciation in the currency against the U.S. dollar is expected to translate into a slower upturn in economic activity and inflation. Low wage growth is also starting to pose a financial stability risk given that growth in household debt has outpaced wage growth. In addition, the Australian housing market is showing signs of a slowdown in certain cities. Nevertheless, the accommodative monetary policy should support a continued uptick in economic growth in the months ahead, helping inflation reach the Bank’s target.
The Bank has started to signal a slightly more hawkish tone in its statement as it becomes increasingly concerned about the housing market’s effect on overall financial stability. For now, though, the RBA is expected to maintain the policy rate at its present low levels until domestic demand growth picks up momentum. However, some of our panelists expect a rate rise as early as Q1 2018.
Author: Christopher Mc Innes, Economist