The Reserve Bank of Australia (RBA) held its benchmark Cash Rate at 1.50% for the 22nd consecutive meeting — equating to 2 years since its last change — this afternoon (2:30pm AEST). This was a unanimously expected outcome by markets, while all 29 economists surveyed by Bloomberg Australia had forecast no change.
The statement which accompanied today’s announcement contained some commentary around the RBA’s outlook for growth, unemployment and inflation ahead of Friday's quarterly Statement on Monetary Policy.
The RBA retains its forecast for growth in the domestic economy to be “a bit above 3 per cent in 2018 and 2019”. As of Q1, GDP growth was 3.1%Y/Y.
With its growth outlook unchanged and employment growth exceeding working-age population growth, the RBA expects the unemployment rate to decline gradually “over the next couple of years to around 5%”.
This would represent a slight improvement on its forecasts from May, where the low was 5.25%. Australia’s unemployment rate is currently at 5.4%. With this, the RBA expects that, over time, this will generate “some lift in wages growth” however, the pace is expected to remain low for a while yet.
Turning to inflation, the RBA has flagged a decline in Q3 later this year to 1.75% from “once-off declines in some administered prices”. Administered prices refer to areas which are impacted by government policy, such as utilities. Further out, the RBA sees inflation rising in 2019 and 2020 to “higher than it is currently”. May’s forecasts for 2019 and 2020 had inflation at 2.25%.
Regarding the housing market, the statement notes the recent declines seen in property prices in Sydney and Melbourne, while it attributes the decline in the pace of housing credit growth to investors to tighter lending standards and the additional supervisory measures introduced by the banking regulator, APRA, last year.
The RBA has recently noted short-term wholesale interest rates increasing in Australia. In today’s statement, its commentary notes that “money-market interest rates are higher than they were at the start of the year”, although this had not translated into higher retail deposit rates, while some lenders had increased mortgage rates by small amounts.
The other significant change in this statement was its assessment that China’s economy “has slowed a little”, which compares to last month where it noted, “the Chinese economy continues to grow solidly”.
Today’s meeting was the start of a busy week for the RBA; tomorrow (1.05pm AEST), Governor Philip Lowe is scheduled to deliver a speech titled ‘Demographic Change and Recent Monetary Policy’ and on Friday (11:30am AEST), the Bank will publish its quarterly Statement on Monetary Policy (August)
