Sydney Australia skyline

Australia Monetary Policy May 2018

Australia: RBA keeps rates unchanged in May on low inflation and more moderate employment growth

At its 1 May 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 was underpinned by persistent moderate price pressures. Inflation came in at 1.9% in Q1, matching the previous quarter’s reading and slightly below the Bank’s 2.0%–3.0% target range despite the loose monetary stance. Softer increases in housing and transport prices offset faster growth in food prices. Likewise, core inflation remained below the 2.0% threshold. Also underpinning the RBA’s decision to stand pat was low wage growth, which the Reserve Bank expects to persist going forward. With its decision, the RBA aims to bring inflation back to the target range.

As for economic activity, favorable business conditions are supporting an expansion in non-mining business investment, while rising public infrastructure spending is also underpinning growth. Moreover, solid increases in retail sales in the first two months of the year suggest consumer spending is continuing to expand healthily. However, private consumption is being supported by rising debt levels rather than income growth, which remains subdued. Furthermore, in the past few months job creation weakened; in March, the unemployment rate inched up to 5.6%.

The Bank’s communiqué was unchanged from April and largely devoid of forward guidance. Due to supervisory measures and tighter credit standards by the Prudential Regulation Authority, housing prices remained broadly stable over the past few months, easing pressure on the Bank to raise rates in the short term. Moreover, wage growth is expected to remain low, although tightening labor market conditions and growing hiring difficulties should lead to some pick-up in wage growth. Consequently, the Bank sees inflation moving back within the target range this year. As a result, the RBA is likely to raise rates going forward, although any tightening will be gradual and modest in scope.

Australia Interest Rate Forecast

Free sample report

Access essential information in the shortest time possible. FocusEconomics provide hundreds of consensus forecast reports from the most reputable economic research authorities in the world.
Close Left Media Arrows Left Media Circles Right Media Arrows Right Media Circles Arrow Quote Wave Address Email Telephone Man in front of screen with line chart Document with bar chart and magnifying glass Application window with bar chart Target with arrow Line Chart Stopwatch Globe with arrows Document with bar chart in front of screen Bar chart with magnifying glass and dollar sign Lightbulb Document with bookmark Laptop with download icon Calendar Icon Nav Menu Arrow Arrow Right Long Icon Arrow Right Icon Chevron Right Icon Chevron Left Icon Briefcase Icon Linkedin In Icon Full Linkedin Icon Filter Facebook Linkedin Twitter Pinterest