Thursday, 14 December, 2017

RBA keeps the cash rate on hold in August

Australia Inflation Misses Target Australia Inflation Misses Target
Preston Stone | 03 August, 2017, 00:18

While it has been many months since the RBA said anything about the dollar in its policy statement, it has repeatedly warned in other statements that a stronger currency would push down employment and make it harder for the economy to recover from the global financial crisis.

The main event this week is the Reserve Bank of Australia (RBA) rate meeting out at 5.30 BST on Tuesday morning, August 1.

Dr Oliver said it's unlikely there will be a change in Australian interest rates by the RBA because "the bank's read on the economy is too mixed to do anything".

Tim Lawless, head of research at CoreLogic, said higher mortgage rates against a backdrop of high household debt was knocking some of the wind out of the housing market without the Reserve Bank needing to act.

In recent months, mortgage rates have been edging higher, especially for investors and interest-only loans.

"Although RBA would like to cut rates to take upward pressure off the Australian dollar, it can't cut rates as it fears re-stoking the residential property market". They expect unemployment rate would slightly go down over the next couple of years from the current 5.6 percent.

The yield on the benchmark 10-year Treasury note, which moves inversely to its price, hovered around 2.72 percent, the yield on 15-year note flat at 3.02 percent and the yield on short-term 2-year traded almost 1 basis point lower at 1.81 percent by 03:50 GMT. Headline inflation rates have declined recently, largely reflecting the earlier decline in oil prices. The economy is nearly out of the reversal of mining investment that had been weakening growth of late - another bonus. However, wage growth remains low and this is likely to continue for a while yet, the bank added.

There is also likely to be a short-term pick up in inflation, as measured by the consumer price index, as higher electricity and tobacco prices flow through. Lowe said that growth in housing debt has been beating the sluggish climb in household incomes. But Dr Lowe noted that "a factor working in the other direction is increased competition from new entrants in the retail industry".

Finally, CACIB notes that the USD's recent downtrend remains the key theme in the FX markets and price swings around the trend will remain the key source of FX volatility. Taking account of the available information, the Board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time. Rent increases remain low in most cities.

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