RBA Makes Call on Official Cash Rate

Posted 3rd July 2018

The Reserve Bank has made the call to keep interest rates on hold following today’s board meeting.

The board has decided to hold the official cash rate at its record low of 1.50 per cent, for a record-breaking 23rd consecutive month.

Matthew Hassan, Senior Economist at Westpac stated in the Westpac Weekly “We continue to expect the RBA to leave the cash rate firmly on hold both this year and next.”

“Key developments since the June meeting include continued correction in house prices, at about the same pace seen since the correction began late last year but with auction activity suggesting the key Sydney and Melbourne markets may have seen some further weakening.”

AMP Capital chief economist Shane Oliver said that there were many reasons why the RBA found no strong case to move either way just now.

“Signs that mining investment may bottoming, strengthening non-mining investment, surging infrastructure spending and rising export volumes all argue against a rate cut but peaking housing investment,”Mr.Oliver said. “Uncertainty around consumer spending, continuing weak wages growth and inflation, falling Sydney and Melbourne property prices, tightening bank lending standards and global uncertainty around trade all argue against a hike.”

Nationwide measures of housing prices are little changed over the past six months.

The RBA governor Philip Lowe stated today

"The recent data on the Australian economy continue to be consistent with the Bank's central forecast for GDP growth to average a bit above 3 per cent in 2018 and 2019," he said. "GDP grew strongly in the March quarter, with the economy expanding by 3.1 per cent over the year. Business conditions are positive and non-mining business investment is continuing to increase. Higher levels of public infrastructure investment are also supporting the economy. One continuing source of uncertainty is the outlook for household consumption. Household income has been growing slowly and debt levels are high."

"Inflation is low and is likely to remain so for some time, reflecting low growth in labour costs and strong competition in retailing. 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."

"Nationwide measures of housing prices are little changed over the past six months. Conditions in the Sydney and Melbourne housing markets have eased, with prices declining in both markets. Housing credit growth has declined, with investor demand having slowed noticeably," said Mr.Lowe.

"Lending standards are tighter than they were a few years ago, with APRA's supervisory measures helping to contain the build-up of risk in household balance sheets. Some further tightening of lending standards by banks is possible, although the average mortgage interest rate on outstanding loans has been declining for some time."

"The low level of interest rates is continuing to support the Australian economy. Further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual. Taking account of the available information, the Board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time."

Read the full Monetary Policy Statement here.


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