Australia: RBA stands pat in March
March 5, 2019
At its 5 March 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.
Moderate inflation, some weakening in economic activity in the second half of last year and tighter credit conditions underpinned the Bank’s decision. Inflation inched down from 1.9% in the third quarter to 1.8% in the fourth quarter, therefore moving further below the Bank’s 2.0%–3.0% target. Moreover, the correction in housing prices in Sydney and Melbourne continues, which is affecting investors’ appetite, while growth in consumer spending remains weak, restrained by timid wage growth, falling real estate prices and high household indebtedness. That said, the unemployment rate remains low and the labor market continues to add significant numbers of jobs, which is fueling some pick-up in wages. The Bank expects the economy to expand 3.0% this year, supported by robust non-mining business and infrastructure investment, although an uncertain outlook for consumer spending represents a downside risk. The Bank also projects 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.
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 2019 at 1.63% and 2020 at 2.02%.