RBA’s record low rate remains on hold

Drew Cratchley
(Australian Associated Press)


The Reserve Bank has left the cash rate unchanged at 1.5 per cent for a 22nd consecutive month, as it waits for job growth and an improving economy to deliver a boost to wages and inflation.

RBA governor Philip Lowe made mention of the recent political uncertainty in Europe and concerns about US trade policy in announcing the central bank’s rate decision, but said financial conditions remain expansionary.

The RBA’s view of the local economy has not changed, with recent data proving consistent with the bank’s forecast for economic growth to pick up to a little above three per cent in 2018 and 2019, Dr Lowe said.

Household consumption remains a key source of uncertainty, he said, with income growing slowly and debt levels on the rise.

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

“A gradual pick-up in inflation is, however, expected as the economy strengthens.”

Dr Lowe also noted that tighter lending standards are helping to contain the build-up in risk in household balance sheets, and indicated the RBA is not concerned about the potential impact of further tightening.

“While there may be some further tightening of lending standards, the average mortgage interest rate on outstanding loans is continuing to decline,” he said.

St George chief economist Besa Deda said the RBA is expected to leave the cash rate on hold until at least 2019.

“The RBA’s fingers are not itchy to pull the trigger and start a rate-hike cycle,” she said.

“The balance of risks continue to move towards the RBA taking longer to change interest-rate settings.

“Today’s dovish tweaks in the statement and greater worries over the risks in the global economy supports this view.”

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