RBA keeps rates on hold for 19th consecutive meeting

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May 01, 2018 15:42:52

Business people walk outside the Reserve Bank of Australia.

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The RBA last moved in August 2016. (Reuters: Jason Reed)

The Reserve Bank has kept interest rates on hold at the historic low of 1.5 per cent for the 19th consecutive meeting.

The decision was widely expected with the market pricing in a zero chance of rates moving.

The RBA last moved in August 2016 when it made a cut to the current “emergency” setting.

The bank has been balancing its relatively optimistic forecast for economic growth against high household debt and weak wages growth.

While the bank has consistently said the next move will be up, the market has not priced in a full 25 basis point rise until mid-2019.

The RBA’s case for a rise has been supported by underlying inflation finally touching the bottom of its 2-to-3 per cent target band, but a cooling jobs market has recently emerged as problem that may frustrate the move to more “normal” rates.

The RBA appears to be marginally more upbeat on the economy saying GDP growth should be “a bit above 3 per cent” in 2018 and 2019.

In his previous post-meeting communication in April, RBA governor Philip Lowe struck the more muted position limiting his forecast to economic growth being faster than the 2.74 per cent over 2017.

Dr Lowe said inflation was still where the RBA expected it to be despite running marginally below 2 per cent.

“Inflation is likely to remain low for some time, reflecting low growth in labour costs and strong competition in retailing,” Dr Lowe said.

“A gradual pick-up in inflation is, however, expected as the economy strengthens. The central forecast is for CPI inflation to be a bit above 2 per cent in 2018.”

JP Morgan’s Sally Auld said while the commentary was largely unchanged from previous months, the “straight bat” approach was still interesting, given recent economic developments.

“The past month has delivered further disappointments on first quarter global growth, a dovish tilt to recent central bank commentary, new macro-prudential initiatives from APRA, higher funding costs for the banks and tighter lending standards for mortgage borrowers,” Ms Auld said.

“While some of these are likely to be temporary — such as the global growth soft patch — others are likely to prove both enduring and relevant for the domestic growth outlook; tighter lending standards, new macro-prudential initiatives and potentially, higher funding costs for banks.”

Ms Auld said while the RBA was likely to hold the view that the next move in rates will be up, she had “less conviction” than the bank that was the likely direction.

Topics:

money-and-monetary-policy,

economic-trends,

australia

First posted

May 01, 2018 14:30:15