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Australia Monetary Policy February 2018

Australia: RBA keeps rates unchanged in February

At its 6 February 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 after recent data showed that inflation remained subdued in the final quarter of last year, coming in below expectations and continuing to track slightly under the RBA’s 2–3% target range. Also, with wage growth still muted, demand-pull price pressures are not evident. In addition, the introduction of new weights by the Australian Bureau of Statistics in the calculation of inflation from Q4 onwards will likely dampen reported inflation going forward. As a result of these factors, the RBA stayed on hold, in order to nurse inflation back to target.

The Bank’s communiqué was largely devoid of forward guidance. However, the RBA once more highlighted that regulatory changes implemented by the Prudential Regulation Authority are succeeding in taming the housing market and reducing borrowers’ risk profiles, while housing prices have largely stabilized over the last six months in most areas of the country. This should ease the pressure on the Bank to raise rates in the short term. With inflation set to remain moderate, wage growth expected to pick up only gradually and households highly indebted, the Bank is likely to engage in only mild monetary tightening going forward.

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