Australia: RBA keeps its interest rate at record low at its September meeting
September 6, 2016
At its 6 September monetary policy meeting, the Reserve Bank of Australia (RBA) kept its policy rate steady at its all-time low of 1.50%. The RBA has cut its rate by25 basis points twice this year, once in May and once in August. The decision met market expectations and came against a backdrop of low inflation, slow wage growth and a slight moderation in housing prices.
In its accompanying statement, the RBA commented that the global economy continued to grow, albeit at below its long-term average. It noted a divergence in the economic situation between countries as advanced economies are recovering while some emerging economies are slowing down. The Bank noted that the Chinese stimulus had been supportive of growth, but that its effect was beginning to taper off. Lastly, “financial markets continued to function effectively” according to the Bank, amid “remarkably accommodative” monetary policy across the globe.
Domestically, a substantial decline in business investment is not expected to hamper growth too much, thanks to strong growth in exports and other components of domestic demand. Labor market data remains mixed but points to expansion in the months ahead. The Bank also underlined how its low interest rate policy and the low exchange rate were supporting the economy making the necessary adjustments to a low-commodity-price environment. The adjustment could be threatened should the exchange rate strengthen in the future, however.
Furthermore, the Bank downplayed the risks of lower interest rates for the housing market. According to the Bank, stronger supervisory measures, more cautious lending practices and steady growth in housing supply in the years ahead have served to keep house price increases moderate this year..
Against this backdrop, the Board, “judged that holding the stance of policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.”
Author: Christopher Mc Innes, Economist