RBA Leaves Interest Rate Unchanged At Record Low

The Reserve Bank of Australia on Tuesday decided to keep its benchmark interest rate unchanged at a record low, citing sluggish wage growth and low inflation.

The board of the Reserve Bank of Australia, governed by Philip Lowe, voted to maintain the cash rate at 1.50 percent. The interest rate has remained at the current level since August 2016.

“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 bank said in a statement.

Policymakers observed that the low level of interest rates is continuing to support the Australian economy.

They expect further progress in the reduction of unemployment and inflation returning to target, but this progress is likely to be gradual.

The Australian economy is performing well with the GDP growth expected to average around 3.5 percent for this year and next, the bank said.

Inflation is forecast to pick up in the coming years, but the acceleration is likely to be gradual. The central scenario is for inflation to be 2.25 percent in 2019 and a bit higher in the following year.

Labor market remained strong with the unemployment rate declining to 5 percent over the past year, the RBA noted. As the economy is expected to continue to grow above trend, a further reduction in the unemployment rate is likely, the bank added.

Concerning the property market, the RBA said conditions in the Sydney and Melbourne housing markets have continued to ease and nationwide measures of rent inflation remain low.

The outlook for household consumption remained a source of uncertainty for the economy, the bank cautioned. Growth in household income remains low, debt levels are high and some asset prices have declined.

Growth in credit extended to owner-occupiers has eased, while the demand by investors has slowed noticeably due to changing dynamics of the housing market, it added.

The RBA statement sounded a little cautious by assessing external conditions to be less favorable, Marcel Thieliant, an economist at Capital Economics, said.

Thieliant suggested that the bank seemed to be getting a bit more worried about the downturn in the housing market.

Given the dovish outlook for the economy and prices, the economist said that rates are unlikely to rise until late in 2020.

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