Australia: RBA stands pat in June
June 5, 2018
At its 5 June monetary policy meeting, the Reserve Bank of Australia (RBA) left the cash rate unchanged at its all-time low of 1.50%, where it has been since August 2016. The move was widely in line with market expectations.
The Bank’s decision was underpinned by low inflationary pressures. Inflation remains slightly below the bank’s 2.0%–3.0% target range (Q1: 1.9%) amid mild wage growth and strong competition among retailers. Wage growth has been unremarkable and is expected to remain so in the near-term. The RBA expects inflation to rise above 2.0% in 2018.
The Bank reaffirmed, furthermore, the economy is on track to grow slightly above 3.0% on average in 2018 and 2019, supported by higher investment in non-mining business and public infrastructure and a boost in export growth. Private consumption, however, will likely be weighed down by elevated debt levels and stagnant wages. Overall, the pick-up in economic activity has yet to feed through to stronger inflationary pressures.
The Bank highlighted several new downside risks in the communiqué in June, including political instability in Italy and trade protectionism in the U.S. Nonetheless, the statement was largely devoid of forward guidance. Given that wage growth is expected to eventually gain momentum and inflation should move back within the target range this year, the RBA will likely hike rates gradually in the future, although the timeframe of monetary tightening remains unclear.
Australia Interest Rate Forecast
FocusEconomics panelists on average expect mild monetary tightening this year, although several panelists expect rates to remain unchanged. Our panelists see the cash rate ending 2018 at 1.70% and 2019 at 2.23%.
Author: Lindsey Ice, Economist