Australia central bank sticks to upbeat tune as economy underperforms

07 June, 2017, 10:56 | Author: Elaine Woods
  • Australians curb spending as household debt balloons

The Reserve Bank of Australia (RBA) has announced its monthly cash rate call, holding the rate at 1.5% for the 10th month in a row.

The Reserve Bank of Australia has held its benchmark interest rate at 1.5 per cent as expected while indicating it believes east coast housing markets may be starting to cool.

The RBA said that an appreciating Australian dollar would complicate the country's economic rebalancing having a focus on household spending and services and being less reliant on mining.

Some forecasters have predicted the economy shrank in the first three months of the year for the second quarter in three, after it contracted 0.5 per cent in the September quarter.

However, slow wages growth is likely to contain future household spending.

"Nothing has happened since the last meeting that is likely to have materially altered the RBA's view of the outlook for inflation, economic growth or unemployment from that set out in the May statement on monetary policy, and hence nothing will have altered their view that current monetary policy settings are appropriate", said independent economist Saul Eslake.

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The Australian dollar rose, buying 74.90 USA cents at 2:58pm in Sydney compared with 74.74 U.S. cents prior to the decision. There were also signs of a cooler housing market after prices dropped in May for the first time in 18 months. Inflation is forecast to increase gradually as the economy strengthens.

"Prices have been rising briskly in some markets, in other markets, prices are declining", Lowe said.

That was easily the biggest surplus since the series began in 1959 and owed much to higher prices for iron ore and coal, though those have come off their peaks in the last month or so.

Although CoreLogic had only reported one month of negative dwelling value movements so far, a more sustained trend could mean the RBA considers alternatives to keeping rates on hold, he said.

Dr Lowe's post-meeting remarks provided little support for financial market doves betting on further rate cuts, with traders sending the Australian dollar as high as US74.96¢ from a low of US74.57¢ before the meeting.

Economists have trimmed their March quarter GDP expectations because of a larger than expected hit from weaker export volumes, with consensus forecasts of 0.1 per cent growth in the quarter, and an annual growth rate of 1.4 per cent. Still, the RBA may be willing to look past a soft performance in the early part of 2017, mindful of some temporary weather-related factors.

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