RBA Stands Pat But Data Disappoints

The Reserve Bank of Australia held its monetary policy meeting last week on Tuesday morning. The central bank left interest rates unchanged at 1.50%, as it has done since August 2016. The markets widely anticipated this move.

However, the forward guidance, which was the key aspect of this meeting, saw the central bank leaving its statement unchanged. This was against the general view that the RBA could be staring at an interest rate cut down the line.

The RBA statement gave little hints about dovish forward guidance. This came despite RBA Governor Lowe noting that the Australian economy had slowed since the second half of last year. In fact, he said that the low interest rates were supporting the Australian economy.

The Statement

“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,”

The monetary policy statement was largely unchanged from the February meeting. Lowe said that progress would be gradual. This is because the central bank expects further progress in unemployment levels. It also expects that inflation will gradually rise back to the 2.0% target rate set by the RBA.

The bank maintained its view that growth would average around 3.0% for 2019. Lowe noted that the growth outlook was lifted by a rise in business investment, as well as higher spending on infrastructure and gradually improving labor market conditions. Lowe affirmed:

“A further decline in the unemployment rate to 4.75% is expected over the next couple of years. The vacancy rate is high and there are reports of skills shortages in some areas,”

The central bank expressed concerns on household spending. The governor stated that the main uncertainty came from weaker household consumption amid falling wages and house prices.

Australia GDP weakens further in Q4 2018

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