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Australia Monetary Policy November 2019

Australia: RBA stands pat in November

At its 5 November monetary policy meeting, the Reserve Bank of Australia (RBA) kept the cash rate unchanged at 0.75%, an all-time low. November’s decision, which was in line with the expectations of most market analysts, follows three cuts this year, the latest one having taken place in October. The RBA’s dovish tone again signaled that further monetary policy easing could be on the cards in the coming months.

Supporting employment and income growth, as well bringing inflation closer to the Bank’s 2.0%–3.0% target range, led the decision to keep rates unchanged at an all-time low level. Inflation ticked up from 1.6% in Q2 to 1.7% in the third quarter, thus moving marginally closer to the Bank’s band. However, while the unemployment rate dipped to 5.2% in September from a one-year high of 5.3% in August, it remained above the 4.5% level the RBA considers to be conducive to faster wage growth and inflation. Moreover, growth in H1 was subdued, restrained by falling housing prices, weak disposable income growth and lackluster investment activity, while muted retail sales in Q3 points to protracted weakness in household spending.

Looking forward, the RBA expects headline inflation to be close to 2.0% in both 2020 and 2021, although it noted that uncertain domestic consumption dynamics and ongoing global trade and technology disputes were key risks to the outlook. The communiqué also highlighted that there are growing signs of a turnaround in the housing market in Melbourne and Sydney. Against this backdrop, the Bank reiterated that “an extended period of low interest rates will be required in Australia” in order to reduce unemployment and bring inflation to within the target range, and did not rule out further monetary easing.

The next monetary policy meeting is scheduled for 3 December.

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