Monday, 21 January, 2019

RBA announces interest rate decision for March

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Nellie Chapman | 06 March, 2018, 17:30

Weak wages growth, continuing below target inflation, higher household debt, indifferent consumer spending and risks support the case for rates to remain on hold.

"The danger is that the longer you don't do anything, the longer people assume you won't, and then when eventually [a rate hike] does happen, the greater the shock will be", Dr Oliver told Domain.

The Reserve Bank of Australia may not begin lifting interest rates until 2019 after reinforcing its expectations for only gradual improvement in wages growth and inflation over the year ahead.

"The Reserve Bank of Australia will nearly certainly leave its policy rate on hold at 1.50% at its policy meeting and it will probably continue to signal that there is little chance of a near-term rate hike either".

The move was highly expected.

"On balance it makes sense to continue to leave interest rates on hold".

Globally, inflation remains low, although higher commodity prices and tight labour markets are likely to see inflation increase over the next couple of years.

The Australian and New Zealand dollars edged up on Tuesday as investors wagered that US President Donald Trump's threatened tariffs might not prove as disruptive as first feared, reviving the appetite for risk.

The yield on the benchmark 10-year Treasury note, which moves inversely to its price, jumped 6-1/2 basis points to 2.82 percent, the yield on the long-term 30-year note surged 8 basis points to 3.41 percent and the yield on short-term 2-year traded 4-1/2 basis points up at 2.01 percent by 04:30 GMT.

While this change in the attitude to growth appears to be somewhat more dovish, the Bank does show some more confidence about wages. Higher levels of public infrastructure investment are also supporting the economy. "Household consumption is likely to have bounced back in Q4, although this follows a particularly weak Q3", The NAB economics team wrote.

Employment grew strongly over the past year and the unemployment rate declined.

"After APRA regulations restricting availability of loans to investors, we actually saw rates for owner-occupier loans fall - the difference between owner-occupier and investor loans is now smaller than ever", said Mr Wilson. It added that "the rate of wage growth appears to have troughed and there are reports that some employers are finding it more hard to hire workers with the necessary skills". "The central forecast is for inflation to be a bit above 2% in 2018".

With little changing in the domestic economic landscape since those comments, the market had fully expected another "no move" result in March.

The housing market is less a concern as "the housing markets in Sydney and Melbourne have slowed". Its chief economist Jordan Eliseo said that while employment data, business conditions, and growth figures are solid, there seems no obvious catalyst to turn around the record low wage growth.

On the monetary policy outlook, the central bank reiterated the stance that the current accommodative policy should be appropriate to support economic growth.