Spending, jobs worries keep RBA on hold

Petrina Berry
(Australian Associated Press)

 

The Reserve Bank has held the official cash rate at 1.5 per cent for the 21st consecutive month, saying weak household spending and sluggish wages growth remain a concern for the economy.

RBA governor Philip Lowe kept his comments on employment, inflation and the state of the housing market virtually unchanged from his April statement in announcing the widely expected decision to keep rates on hold.

Dr Lowe continued to call out household consumption as a source of uncertainty, pointing to incomes growing slowly while household debt levels remain high.

While repeating his forecast that the economy’s growth rate is expected to pick up, Dr Lowe said for the first time since January that he expected it to lift above three per cent in 2018 and 2019.

Westpac head of macro strategy David Goodman said while the forecast showed some signs of “hawkishness,” the RBA will likely hold the cash rate for a long time.

BIS Oxford Economics’ head of macroeconomics Sarah Hunter said three per cent was overly optimistic.

Ms Hunter said weak consumer spending and the coming residential construction downturn will limit the nation’s economic growth to around 2.7 per cent this year and next.

“As ever, the board signalled that a pick-up in wage and price inflation will be gradual,” Ms Hunter said.

“We see this as the board signalling that rates will be on hold until this process is firmly entrenched, which is likely to be well into 2019, and we don’t expect the cash rate to rise until December quarter 2019.”

Dr Lowe noted in his statement that the price of oil has increased recently, as have the prices of some base metals and said while Australia’s terms of trade are expected to decline over the next few years, they should remain at a relatively high level.

TD Securities macro strategist Annette Beacher said today’s statement was more of a cut and paste of recent months than she had expected.

“We were looking for a nod to higher underlying inflation but the bank’s narrative was little changed,” she said.

The Australian dollar was unaffected by the rates decision, trading at 75.30 US cents at 1630 AEST, slightly down from 75.59 US cents on Monday.

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