Australia Monetary Policy June 2016


Australia: RBA leaves rate unchanged in June

June 7, 2016

In a move that was widely expected by market participants, the Reserve Bank of Australia (RBA) left its cash rate at 1.75% at its 7 June meeting. In May, the RBA made a surprise 25-basis-point cut to the cash rate after lackluster inflation and weak growth figures for the first quarter convinced the RBA that additional monetary stimulus was needed.

The RBA noted in its accompanying statement that the global economy was growing at a slower than average pace. Although conditions have improved in advanced economies, several developing economies are experiencing difficulties. China’s growth moderated in Q1, however, Chinese authorities, who have committed to supporting growth in 2016, have made statements recently that have prompted analysts to boost the outlook. Commodity prices have recovered from the historical lows seen in the first quarter of the year, although prices for key Australian export commodities are still resting at low levels in comparison to recent years. Australia’s terms of trade have consequently deteriorated. Globally, funding for high-quality borrowers is still inexpensive and financial markets have experienced a period of calm following the heightened volatility at the beginning of the year.

In Australia, data suggest that the economy is growing despite a sizable decrease in business investment. Business investment has suffered as a result of low commodity prices, which have caused resource extraction firms to cut back on capital expenditure. Domestic demand has performed solidly, while signals from the labor market are mixed, but generally positive. Inflation in Australia has been low, prompting the RBA to cut the cash rate at its previous meeting. Given low inflationary pressures on a global scale and subdued growth in the labor market, the RBA sees low inflation persisting for some time.

Credit growth has picked up in Australia, thanks in part to lower interest rates. This is particularly true for business credit growth, while credit to the housing market has slowed. The Australian housing market, which recorded strong growth last year, has slowed considerably. The RBA also stated that a notable supply of new apartments is scheduled to enter the market in the next couple of years.

The RBA concluded by stating that, “taking account of the available information, and having eased monetary policy at its May meeting, the Board judged that holding the stance of policy unchanged at this meeting would be consistent with sustainable growth in the economy and inflation returning to target over time.” The next policy meeting is scheduled for 5 July.

FocusEconomics Consensus Forecast panelists expect the cash rate to end 2016 at 1.87% and see it climbing to an average of 2.26% by the end of 2017.

Author:, Economist

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Australia Monetary Policy Chart

Australia Monetary Policy June 2016 0

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

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