Reserve Bank solidly on interest rate sidelinesReserve Bank Board meeting
The Reserve Bank has left the cash rate at a record low of 1.50 per cent for the 23rd straight month (21st meeting). The last rate change was a quarter percent rate cut on August 2, 2016.
What changed since the last meeting?
• Ongoing fears of a US-versus-everyone trade war.
• US unemployment remains at an 18-year low of 3.8 per cent.
• US interest rates rose for the seventh time this cycle.
• The rolling annual budget deficit stands at $12.8 billion or 0.7 per cent of GDP.
• The economy grew 1 per cent in the March quarter – the strongest growth in six years
• The jobless rate fell to 5.4 per cent – it hasn’t been lower in five years.
• Job vacancies are at record highs.
• The Aussie dollar has fallen from near US76 cents to US73 cents.
• The NAB survey showed business conditions dipped from record highs in May.
• Annual credit growth has slowed to 4.8 per cent.
• National home prices fell by 0.2 per cent in June to stand 0.8 per cent lower on the year.
• Petrol prices rose by almost 25 per cent over the year – biggest lift in 9½ years.
The Reserve Bank assessment
The Reserve Bank has issued a far shorter statement than it has for some time. There have also been substantial tweaks to the wording. The Reserve Bank has become more guarded on the outlook for the global economy, merely indicating that the expansion is continuing rather than strengthening. The Reserve Bank highlights US trade policy and strains in emerging nations as factors to watch. But the Reserve Bank remains upbeat on the domestic economy, saying that the economy grew strongly in the March quarter. The Bank has also highlighted positive business conditions and high levels of infrastructure and non-mining investment.
Perspectives on interest rates
The Reserve Bank has left the cash rate at 1.50 per cent. The previous move was a rate cut in August 2016 (25 basis points). There have now been 12 rate cuts since November 2011, with the Reserve Bank cutting rates from 4.75 per cent to 1.50 per cent.
The Reserve Bank had previously lifted rates seven times from October 2009 to November 2010 – a total of 1.75 percentage points, from 3.00 per cent to 4.75 per cent.
What are the implications of today’s decision?
The Reserve Bank Governor continues to believe that the next move in rates will be up. But he stresses “there is not a strong case for a near-term adjustment in monetary policy.” CommSec also believes that the next move in rates is up, but not until early 2019 at the earliest.
Published by Craig James, Chief Economist, CommSec