At its meeting today, the Board decided to leave the cash rate unchanged at 2.5 per cent.
Growth in the global economy is continuing at a moderate pace, helped by firmer conditions in the advanced countries. China's growth remains generally in line with policymakers' objectives. Commodity prices in historical terms remain high, but some of those important to Australia have declined this year.
Financial conditions overall remain very accommodative. Long-term interest rates and risk spreads remain very low. Emerging market economies are receiving capital inflows. Volatility in many financial prices is currently unusually low. Markets appear to be attaching a very low probability to any rise in global interest rates, or other adverse event, over the period ahead.
In Australia, growth was firmer around the turn of the year, but this resulted mainly from very strong increases in resource exports as new capacity came on line; smaller increases in such exports are likely in coming quarters. Moderate growth has been occurring in consumer demand. A strong expansion in housing construction is now under way. At the same time, resources sector investment spending is starting to decline significantly. Signs of improvement in investment intentions in some other sectors are emerging, but these plans remain tentative as firms wait for more evidence of improved conditions before committing to significant expansion. Public spending is scheduled to be subdued. Overall, the Bank still expects growth to be a little below trend over the year ahead.
There has been some improvement in indicators for the labour market this year, but it will probably be some time yet before unemployment declines consistently. Recent data showed an increase in inflation, with both headline and underlying measures affected by the decline in the exchange rate last year. But growth in wages has declined noticeably and is expected to remain relatively modest over the period ahead, which should keep inflation consistent with the target even with lower levels of the exchange rate.
Monetary policy remains accommodative. Interest rates are very low and for some borrowers have continued to edge lower over recent months. Savers continue to look for higher returns in response to low rates on safe instruments. Credit growth has picked up a little, including most recently to businesses. The increase in dwelling prices has been slower this year than last year, though prices continue to rise. The exchange rate remains high by historical standards, particularly given the declines in key commodity prices, and hence is offering less assistance than it might in achieving balanced growth in the economy.
Looking ahead, continued accommodative monetary policy should provide support to demand and help growth to strengthen over time. Inflation is expected to be consistent with the 2–3 per cent target over the next two years.
In the Board's judgement, monetary policy is appropriately configured to foster sustainable growth in demand and inflation outcomes consistent with the target. On present indications, the most prudent course is likely to be a period of stability in interest rates.
Yeah, and the only way is down for the next few years.I m not sure who is going to leave any cash on a saving account, property is not going away.
The jobs losses are not going away.
Will interest rate drops be enough to compensate for all the job losses.
A 0.25% drop on a 300k mortgage is $16 a week , would that even cover the increase in electricity and gas , council rates and water rate increases for starters, let alone pay down anything substantial from the loan even if they were to save it .
Will interest rate drops be enough to compensate for all the job losses.
A 0.25% drop on a 300k mortgage is $16 a week , would that even cover the increase in electricity and gas , council rates and water rate increases for starters, let alone pay down anything substantial from the loan even if they were to save it .
The RBA doesn't change rates for the purpose of manipulating home loan rates, they do it to stimulate or retard business investment. Because of Australia's strong economy, our interest rates haven't had to drop to the same level as some other countries.
The RBA doesn't change rates for the purpose of manipulating home loan rates, they do it to stimulate or retard business investment. Because of Australia's strong economy, our interest rates haven't had to drop to the same level as some other countries.
Australia's economy is not strong, it is getting weaker by the day, shown in rising jobs losses, the highest in over a decade. As a result our interest rates are at record lows, six years on from the GFC surfacing.
The only reason our interest rates are not as low as everybodies else's yet, is because we were riding a 100 year mining boom , while all the others were not. As they were sheding jobs in record numbers from 2008, we were putting them on in record numbers. But that has now changed and we are losing jobs in record numbers and the money that goes with them.
Our economy has never looked weaker, can you tell me the last time interest rates in Australia were this low for this long ???
The monetary policy deliberations of the RBA remain torn. At one level, there is a need for higher interest rates as the house price pick up continues, as the hard data on inflation is ticking higher and as evidence mounts that the pause in activity associated with the budget may have been temporary.
At another level, that pause in activity may still be the start of a move back towards sub-trend growth – time will tell, the Australian dollar is still very high – certainly relative to the terms of trade, the unemployment rate is elevated and while the global economy is looking only mediocre, commodity prices are trending lower which will no doubt act as a drag on national income.
So there you have it. Up, down; down, up. While such divergences and uncertainties persist, the best course of action is to leave interest rates steady and that is exactly what the RBA has done for the past year.
The issue for the RBA is that the level of interest rates is extremely supportive for growth and that to cut rates from these already very low levels would require extreme news on growth, inflation, unemployment or from global markets. This still might happen, but it is unlikely. With the Dun & Bradstreet survey of business expectations turning higher, the Roy Morgan ANZ index of consumer sentiment higher, retail sales and credit growth also ticking up in recent times, the likely next move in official interest rates is up but it is unlikely to happen any time soon.
Adding to the case for higher interest rates is the lowering of credit costs which has seen banks deliver lower mortgage interest rates even though official interest rates have been on hold. The RBA will tolerate only so much of this undercutting of monetary policy before it acts, in much the same way it railed against the bank's higher cost of funds during and immediately after the crisis by cutting official interest rates by a greater amount that would normally have been the case.
The next big items to determine when and which direction that RBA will move interest rates are the capital expenditure data at the end of August, the national accounts in early September and the monthly run of labour force data, including those released this Thursday. If these show any upside momentum, the RBA could well be moving to a clear tightening bias before year end.
Like all of us mere mortals, the RBA will be watching the data and reacting to it before being sure about delivering any interest rate change.
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