Australia Keeps Rates On Hold

An Australia 100 dollar note is seen in this illustration

Local market news was preoccupied with the RBA's monthly meeting yesterday, at which the central bank kept interest rates on hold for 22nd straight time.

'GDP growth is expected to average a bit above 3% in 2018 and 2019. Lowe amended his language on China's economy in his accompanying statement, saying growth "has slowed a little", instead of growing solidly. "This should see some further reduction in spare capacity".

A higher rate of inflation increases the odds of a future RBA interest rate hike, as it puts more pressure on policymakers to consider raising rates to combat price growth.

Last Friday, Bank of England (BoE) Governor Mark Carney said the chances of a "no deal" Brexit becoming reality were "uncomfortably high", though he argued it was still unlikely overall.

A statement accompanying the decision from Philip Lowe, the central bank's governor, gave a nod to uncertainty over United States trade policy as well as household consumption domestically, in addition to noting the toll taken on Australia's farm sector by a recent drought.

Australia's population growth remains high in comparison with other advanced economies.

"The most recent Quarterly Business Survey from the National Australia Bank found that favourable business conditions continue and point to business investment growth". There has been a broad-based appreciation of the U.S. dollar over recent months. "That was an improvement on the previous call of 5.25%, but still a glacial decline from the current 5.4%".


"The latest inflation data were in line with the bank's expectations", Lowe said.

'The central forecast is for inflation to be higher in 2019 and 2020 than it is now'. There was a push above near-term descending resistance, but AUD/USD's range between 0.7481 and 0.7315 is still in play. This is largely due to reduced demand by investors as the dynamics of the housing market have changed.

ANZ said it expects to see peak-to-trough declines of about 10 per cent in both Sydney and Melbourne in the same period, while Dr Oliver believes Sydney and Melbourne will see declines of 15 per cent while the national average will fall by 5 per cent. "There is competition for borrowers of high credit quality".

Specifically, the RBA left its cash rate unchanged at 1.5 percent Tuesday as predicted by 39 out of 40 analysts polled by Reuters, marking 24 consecutive months at a record low.

While Lowe said "one-off declines in some administered prices in the September quarter are expected to result in headline inflation in 2018 being a little lower than earlier expected", the RBA still expects inflation to be higher in 2019 and 2020 than it is now. The main opposition Labor party may dilute planned income tax cuts that - in an environment of stagnant wages and rates - are one of the few options to boost wages.

The RBA maintains its next move is more likely to be up than down; Lowe, since taking the helm in September 2016, has consistently said that an increase will only come once the economy is near full employment and inflation closer to the central bank's 2-3 percent target midpoint.

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