Australia Monetary Policy February 2017

Australia

Australia: Record-low policy rate held steady at February meeting

February 7, 2017

At its 7 February monetary policy meeting, the Reserve Bank of Australia (RBA) held its cash rate steady at 1.50%, an all-time low after two 25 basis-point rate cuts in 2016. The Board’s decision to keep the cash rate unchanged was expected by market analysts and was framed by optimism as an enduring global economic recovery and higher commodity prices sustain growth and keep the Bank’s inflation target within reach.

In its accompanying statement, the RBA noted that Australia’s economy was in transition following the end of a mining investment boom, and that “reasonable” growth was expected to return in the fourth quarter of 2016. The Board further justified its decision by noting that no other major economy is expected to introduce additional monetary easing in the short term, as global financial markets continue posting gains and the U.S. is seen raising rates faster than previously expected. It conceded that labor market conditions remain mixed, though employment growth turned positive in late 2016. In addition, inflation remains low though it is expected to rise above 2.0% later this year.

Given this improving picture, the Board signaled that its policy rate would be unchanged for some time and is consistent with growth and inflation targets. The next monetary policy meeting is scheduled for 7 March.

FocusEconomics Consensus Forecast panelists see the cash rate remaining low this year and finishing 2017 at 1.35% on average. Our panelists see it rising next year, with an average Consensus of 1.63% by year-end.


Author:, Economist

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Australia Monetary Policy February 2017 3

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


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