Australia Monetary Policy September 2018

Australia

Australia: RBA holds the policy rate stable in September

September 4, 2018

At its 4 September monetary policy meeting, the Reserve Bank of Australia (RBA) left the cash rate unchanged at the all-time low of 1.50% where it has been for two years. The move was in line with market expectations.

The Bank’s decision came amid moderate inflationary pressures and slow private consumption growth despite a solid labor market and a slight pick up in wages. Inflation came in at 2.1% in the second quarter and stayed close to the lower bound of the Bank’s 2.0%–3.0% target range in July and August. However, the Bank expects inflation to trend below 2.0% in September due to one-off declines in some administered prices. Lastly, the Bank reaffirmed its view that the economy is set to expand just above 3.0% on average this year and next. Nevertheless, economic activity growth is not likely to translate into higher inflation in the short term.

The Reserve Bank of Australia highlighted the uncertainty surrounding U.S. international trade policy and gradually slowing Chinese growth as downside risks to the global outlook. Although the communiqué was devoid of any further forward guidance, inflationary pressures should eventually rise given that the labor market is expected to continue improving in the medium term. In the face of a slowly tightening labor market and an expected pick up in wages, the Bank is thus likely to enter a gradual tightening cycle in the coming quarters, with the first rate hike expected by the end of this year.

FocusEconomics panelists on average expect mild monetary tightening this year, although several panelists expect rates to remain unchanged. Our panelists see the cash rate ending 2018 at 1.70% and 2019 at 2.23%.


Author:, Economist

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