Australia Monetary Policy November 2017

Australia

Australia: RBA keeps rates unchanged in November

November 7, 2017

At its 7 November 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 widely expected by market analysts.

The RBA’s move to maintain its loose monetary stance came after recent data showed that inflation in Q3 dipped slightly further below the 2.0%–3.0% target range. This marked a continuation of subdued price pressures, which in the third quarter were largely driven by the appreciation of the Australian dollar and weak labor cost pressures. In addition, the new consumer price index weights to be introduced by the Australian Bureau of Statistics from Q4 onwards are likely to chip away further at the inflation rate going forward. On the demand side, the economy seems to be strengthening; both consumer and business sentiment are now in positive territory, while the unemployment rate dipped in September. However, a tighter labor market has yet to feed through to higher wage growth.

The Bank’s communiqué was largely devoid of forward guidance. However, the Bank once more highlighted that changes instigated by the Australian Prudential Regulation Authority (APRA) to cool the housing market are bearing fruit. The frothy market in Sydney is easing, while in most other cities house prices remained largely unchanged compared to last month. This should lessen the pressure on the Bank to raise rates in the short term. With inflation set to remain fairly low for some time, and households highly indebted, the Bank is likely to raise rates only gradually going forward. FocusEconomics panelists expect the Bank to raise rates in 2018, with most expecting a slight tightening in the second half of the year.

FocusEconomics Consensus Forecast panelists see the cash rate ending 2018 at 1.79%, and ending 2019 at 2.18%.


Author:, Economist

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Australia Monetary Policy November 2017

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


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