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Rates steady, but economy at above-trend paceReserve Bank Board meeting
The Reserve Bank has left the cash rate at a record low of 1.50 per cent for the 25th straight month (23rd meeting). The last rate change was a quarter percent rate cut on August 2, 2016.
What changed since the last meeting?
The ‘US versus everyone’ trade disputes still dominate attention.
Retail trade was unchanged in July after gains of 1.3 per cent in the previous three months.
• Business investment rose by 3.1 per cent in 2017/18 to a record $118 billion.
• Almost 93 per cent of ASX 200 companies recorded a profit in 2017/18.
• Average weekly ordinary time earnings rose by 2.7 per cent over the year.
• The wage price index rose by 2.1 per cent on the year; up 2.5 per cent with bonuses
• The Australian jobless rate fell to 5.32 per cent in July – a 5½-year low.
• The Aussie dollar has eased from US74 cents to US72 cents.
• The NAB business conditions index was +12.4 in July (+5.7 points long-term average).
• Annual credit growth has slowed to 4.4 per cent – the slowest rate in 4½ years.
• Dwelling approvals fell by 5.2 per cent in July to be down 5.6 per cent on the year.
• Petrol prices across the nation hover near $1.50 a litre.
• National home prices fell by 0.3 per cent in August to stand 1.6 per cent lower on the year.
The Reserve Bank assessment
The statement after the August meeting was 699 words. This time it is 678 words. Clearly the thematic hasn’t changed, so need to add extra verbiage. The Reserve Bank expects 3 per cent economic growth, a tighter job market, higher wages and higher prices. But the transition from each step will be gradual. Notably the economy is estimated to be growing at an above-trend rate. The Reserve Bank hasn’t introduced new issues of concern. And while some banks have lifted rates, the RBA says that the average mortgage rate paid is lower than a year ago. The RBA also notes that higher money market rates haven’t boosted retail deposit interest rates.
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?
We expect the first rate hike in the second half of 2019. The economy doesn’t need speeding up or slowing down, so there is no urgency to change rates. Inflation forecasts need to change before the Bank starts tinkering with its rate views.
Published by Craig James, Chief Economist, CommSec