Australia Monetary Policy April 2018

Australia

Australia: RBA keeps rates unchanged in April

April 3, 2018

At its 3 April monetary policy meeting, the Reserve Bank of Australia (RBA) kept the cash rate at its all-time low of 1.50%, where it has been since August 2016. The decision was in line with market expectations.

The RBA’s decision came as price pressures remained soft, with inflation likely tracking below the Bank’s 2.0%–3.0% target range in Q1, as was the case in Q2–Q4 2017. Low inflation is being driven in part by weak wage pressures, as evidenced by a meager 2.1% year-on-year rise in earnings in the final three months of last year. On the demand side, and although the Bank acknowledged that the economy is likely to strengthen this year from last year’s moderate growth rate, there are few signs that stronger growth is generating substantial price pressures. By keeping interest rates low, the Central Bank aims to ensure inflation returns to target and support the economy.

The Bank’s communiqué stated that the cash rate is more likely to rise than fall when the RBA finally adjusts its stance, a comment which was absent at the previous meeting. However, it is unclear whether this signals a significant change in the Bank’s interest rate outlook, as the statement continued to emphasize that wage growth will only recover gradually and that spare capacity in the labor market persists. Some of our panelists have penciled in mild monetary tightening towards the second half of 2018 as inflation moves back within the target range, while others expect the RBA to wait until 2019 before raising rates.

On average, FocusEconomics panelists see the cash rate ending 2018 at 1.66% and 2019 at 2.19%.


Author:, Economist

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Australia Monetary Policy April 2018 0

Note: RBA Cash Rate in %.
Source: Reserve Bank of Australia (RBA).


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