Record low interest rate rolls into its second year

10 August, 2018, 11:15 | Author: Eric Barnett
  • An Australia 100 dollar note is seen in this illustration

THE Reserve Bank has kept the official cash rate on hold for two years running at its August meeting, extending the longest ever streak without a change. The GDP for 2018 and 2019 is expected to average slightly above 3 per cent. Household income has been growing slowly and debt levels are high. "This should see some further reduction in spare capacity".

How positive can the data - that only ever describes the past - actually become to be able to cover up the [larger] risks the United Kingdom economy is facing?'AUD Benefits from Central Bank Speculation and Risk-Sentiment Investors have found risky commodity-correlated currencies like the Australian Dollar more appealing since the end of last week, due to rising commodity prices and stronger market performance in China.

The bank will have more on its forecasts in Friday's third Statement of Monetary policy for 2018 but the statement yesterday indicates that apart from inflation there won't be too much of a change.

In the wake of today's mixed RBA meeting, Mr Lowe is likely to offer a cautious economic outlook, which would drag the Australian Dollar further down. Keep in mind that this was the first month in which the USA imposed tariffs on China imports.

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

"Not surprisingly, the direction of global trade policy continues to be a key source of uncertainty, but importantly, "financial conditions remain expansionary, although they are gradually becoming less so in some countries".

That was an improvement on the previous call of 5.25 percent, but still a glacial decline from the current 5.4 percent.

The latest inflation data were in line with the Bank's expectations.


The RBA said Tuesday "the central forecast is for inflation to be higher in 2019 and 2020 than it is currently" but gave no other details.

With a population growth pace of 1.6 per cent, which is more than double the 0.7 per cent average for advanced economies, Australia has avoided a recession for a record 27 years.

The slowdown in the home market, particularly in Sydney and Melbourne, has reportedly influenced the RBA's reluctance to raise rates.

Australia's most powerful banker has credited high immigration with boosting the economy. This was a deeper drop than the expected minus 0.5% decline and the 2.4% gain in May.

"The low level of interest rates is continuing to support the Australian economy", Dr Lowe said in the final paragraph of the statement." urther progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual".

Dr Lowe said the RBA needed "to keep a close eye on the housing market and housing finance" but added it was helpful the change was taking place at a time when the unemployment rate is trending lower and the economy is recording good growth.

Lowe told the audience the Bank expects Australian inflation to remain low over coming years, with the consumer price index set to rise only as far as 2.5% "in 2020", which is the midpoint of the RBA's 2% to 3% inflation target.

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