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Australia Monetary Policy February 2019

Australia: RBA stands pat in February

At its 5 February monetary policy meeting, the Reserve Bank of Australia (RBA) left the cash rate unchanged at an all-time low of 1.50%, where it has been for over two years. The move matched market expectations.

Modest inflation, some weakening in economic activity and tighter credit conditions underpinned the Bank’s decision. Inflation slowed from 1.9% in the third quarter to 1.8% in the fourth quarter, therefore edging further below the Bank’s 2.0%–3.0% target. Moreover, the correction in housing prices continues, especially in the east coast, which is affecting investors’ appetite. Furthermore, growth in consumer spending remains sluggish, weighed down by feeble wage growth, falling real estate prices and a high stock of debt. That said, the Bank expects the economy to perform solidly overall this year, and expand 3.0%, supported by strong resource exports and non-mining business and infrastructure investment, and sees it decelerating slightly in 2020. The Bank also expects underlying inflation to be 2.0% in 2019, before accelerating to 2.3% in 2020.

The Reserve Bank of Australia cited global trade tensions and softening growth in China as the main downside risks to the global outlook. The communiqué suggests the RBA will maintain a loose monetary policy stance in the near-term. This, together with faster wage hikes fueled by a further tightening in labor market conditions, should gradually stoke inflation.

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