The Reserve Bank of Australia has kept rates on hold at 1.5%.
The decision to leave the cash rate on hold today came as no surprise to those following our economy.
To better understand the decision, here’s some interesting expert commentary:
Martin Lakos ( Macquarie) comment:
This month’s Reserve Bank of Australia interest rate policy meeting delivered no surprises, with interest rates kept on hold again at 1.5%.
The minutes from the last Reserve Bank of Australia meeting gives us some insight that there remains enough spare capacity in the Australian economy for the inflation outlook not to warrant higher interest rates just yet.
Macquarie has adjusted its estimate of the timing of any future rate rise to early 2019.
Comments from Tim Lawless:
Housing market conditions are likely to be moving further down the RBA’s list of priorities, considering the market is showing every sign of moving through a soft landing, with the pace of value decline easing over recent months.
The controlled slowdown in the housing sector is likely to be a welcome outcome from the RBA, who are more likely to be focussing on labour markets, where the rate of unemployment, although lower than a year ago, crept higher, from 5.4% to 5.5% in February.
With some slack in labour markets, wages growth remains close to record lows, which is keeping a lid on inflation and household consumption.
National dwelling values were flat last month, however six of the eight capital cities saw dwelling values slip lower in March, albeit at a reduced rate of decline relative to other months.
Despite the hold decision from the RBA, mortgage rates remain close to historic lows, particularly for owner occupiers who are paying down both their interest and principal.
Investors are facing a mortgage rate premium of around 60 basis points, but relative to long term averages, their mortgage rates are low.
While the RBA has flagged the next move in interest rates will be a rise, it remains likely that any hike to the cash rate is well in the future.
Comments from the RBA:
At its meeting today, the Board decided to leave the cash rate unchanged at 1.50 per cent.
The global economy has strengthened over the past year. A number of advanced economies are growing at an above-trend rate and unemployment rates are low.
The Chinese economy continues to grow solidly, with the authorities paying increased attention to the risks in the financial sector and the sustainability of growth.
Globally, inflation remains low, although it has increased in some economies and further increases are expected given the tight labour markets.
As conditions have improved in the global economy, a number of central banks have withdrawn some monetary stimulus and further steps in this direction are expected.
Long-term bond yields have risen over the past six months, but are still low.
Equity market volatility has increased from the very low levels of last year, partly because of concerns about the direction of international trade policy in the United States.
Credit spreads have also widened a little, but remain low.
Financial conditions generally remain expansionary.
There has, however, been some tightening of conditions in US dollar short-term money markets, with US dollar short-term interest rates increasing for reasons other than the increase in the federal funds rate.
This has flowed through to higher short-term interest rates in a few other countries, including Australia.
The prices of a number of Australia’s commodity exports have fallen recently, but remain within the ranges seen over the past year or so.
Australia’s terms of trade are expected to decline over the next few years, but remain at a relatively high level.
The Australian economy grew by 2.4 per cent over 2017.
The Bank’s central forecast remains for faster growth in 2018.
Business conditions are positive and non-mining business investment is increasing.
Higher levels of public infrastructure investment are also supporting the economy.
Stronger growth in exports is expected after temporary weakness at the end of 2017.
One continuing source of uncertainty is the outlook for household consumption, although consumption growth picked up in late 2017.
Household income has been growing slowly and debt levels are high.
Employment has grown strongly over the past year, with employment rising in all states.
The strong growth in employment has been accompanied by a significant rise in labour force participation, particularly by women and older Australians.
The unemployment rate has declined over the past year, but has been steady at around 5½ per cent over the past six months.
The various forward-looking indicators continue to point to solid growth in employment in the period ahead, with a further gradual reduction in the unemployment rate expected. Notwithstanding the improving labour market, wages growth remains low.
This is likely to continue for a while yet, although the stronger economy should see some lift in wages growth over time.
Consistent with this, the rate of wages growth appears to have troughed and there are reports that some employers are finding it more difficult to hire workers with the necessary skills.
Inflation remains low, with both CPI and underlying inflation running a little below 2 per cent.
Inflation is likely to remain low for some time, reflecting low growth in labour costs and strong competition in retailing.
A gradual pick-up in inflation is, however, expected as the economy strengthens.
The central forecast is for CPI inflation to be a bit above 2 per cent in 2018.
On a trade-weighted basis, the Australian dollar remains within the range that it has been in over the past two years.
An appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast.
The housing markets in Sydney and Melbourne have slowed.
Nationwide measures of housing prices are little changed over the past six months, with prices having recorded falls in some areas.
In the eastern capital cities, a considerable additional supply of apartments is scheduled to come on stream over the next couple of years.
APRA’s supervisory measures and tighter credit standards have been helpful in containing the build-up of risk in household balance sheets, although the level of household debt remains high.
The low level of interest rates is continuing to support the Australian economy.
Further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual.
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.
Comments from the finder.com.au RBA survey :
Michael Yardney, Metropole (Hold): “Despite an increasing divergence with overseas rates, the RBA will keep official rates at their historic low of 1.5% because of spare capacity in our employment markets. While the Australian economy added 17,500 jobs in February, strong population growth and increased labour-force participation meant the official unemployment rate crept up a notch from 5.5% to 5.6%.”
Jordan Eliseo, ABC Bullion (Hold): “The RBA will continue with their current monetary policy settings, though recent data will have dented their confidence regarding the outlook for employment, inflation and overall economic growth. We remain of the view that their next move will be a cut to the cash rate, particularly if house price weakness continues, but this will take time to play out.”
Tim Nelson, AGL Energy (Hold): “No material changes to outlook since March. ”
Shane Oliver, AMP Capital (Hold): “High business confidence, strong jobs growth and the RBA’s own growth and inflation forecasts argue against a rate cut, but risks around consumer spending, weak wages growth and inflation, the slowing Sydney and Melbourne property markets and the still too high $A argue against a rate hike.”
Alison Booth, ANU (Hold): ”The fundamentals don’t want any change.”
John hewson, ANU (Hold): “[The RBA] simply can’t move given level of household debt. The economy is still mixed.”
Malcolm Wood, Baillieu Holst (Hold): “Inflation below target range, Moderate growth, global volatility.” Paul Dales, Capital Economics (Hold): “There are still no real signs that inflation is heading back up to the middle of the 2-3% target range, so interest rates need to stay low to give it a bit of a boost.”
Saul Eslake, Corinna Economic Advisory (Hold): “Nothing has materially changed since the RBA last stated that current monetary policy settings were (in its opinion) appropriate. There’s been no new data on price or wage inflation; and the most recent labour force data suggests that the margin of spare capacity in the labour market remains unchanged, despite ongoing strong employment growth (because most of the new jobs are going to new entrants to the labour force). And the RBA has repeatedly made it clear that it feels under no pressure to follow other central banks in hiking rates.”
Peter Gilmore, Gateway Bank (Hold): ”The RBA is still concerned about low wages growth and household debt levels.”
Mark Brimble, Griffith University (Hold): “Volatility and uncertainty are key factors in the global context and the Australian economy continues to show lackluster performance.”
Shane Garrett, Housing Industry Association (Hold): “The current economic environment of strong job creation and fairly weak price pressures does not merit a change in monetary policy from the RBA at this time.”
Alex Joiner, IFM Investors (Hold): “There is no material change in the outlook. The labour market continues to perform well however economic activity nor consumer price/wages inflation justifies a near term adjustment of policy.”
Michael Witts, ING (Hold): “The RBA will keep rates unchanged as it is looking for the economy to gather further momentum.”
Leanne Pilkington, Laing+Simmons (Hold): “The residential housing market, and the economy generally, requires the steady interest rate environment to continue. Employment growth has been encouraging but tempered by flattened wage growth, while house price growth is also subdued and clearance rates are solid if unspectacular. It amounts to a prudent case of the RBA leaving rates as is.”
Nicholas Gruen, Lateral Economics (Hold): ”The economy has spare capacity and the bank doesn’t want to cut – even though for a long time it should have.”
Mathew Tiller, LJ Hooker (Hold): “The global economy has continued to show signs of improvement, despite ongoing geopolitical uncertainty. In Australia, the economy remains on a steady footing with business confidence and employment improving. However, this is yet to flow through the increased wages or consumer prices. Housing markets across the country continue to remain active with listings numbers increasing and auction clearance rates sitting just below the long-term average. More properties on the market for sale has provided more choice for buyers and when combined with the moderation of investor demand has led to a slowdown in price growth. In weighing up these variables, it is likely that the RBA will keep the cash rate at the record low of 1.50% over the short-term.”
Marie Mortimer, loans.com.au (Hold): “We are speaking to a lot of borrowers who are refinancing with loans.com.au for a cheaper rate than traditional lenders because they are conscious of their household budget. The RBA are also aware of the impact on a rate rise to household budgets and we believe that rates will remain on hold in the short term due to the relatively low inflation rate and weak economic sentiment.”
Stephen Koukoulas, Market Economics (Hold): ”The RBA is unable to get away from its obsession with non-existant financial instability. It should be cutting rates”
John Caelli, ME (Hold): “The RBA has flagged they are in no hurry in increasing rates. They want to see inflation increase, a pick-up in wages and lower unemployment before they consider putting up rates again.”
Mark Crosby, Monash University (Increase): “Despite ‘The Donald’s’ attempts to trash the world economy, the case for the RBA raising is now very strong.”
Christopher Schade, MyState (Hold): ”With wages growth subdued and inflation well contained; there is no need for the RBA to rush to raise rates. We would not be surprised to see the RBA on hold for much, if not all of CY 2018.” Alan Oster, nab (Hold): ”No increase until we get better wages and more consumer activity.”
Jonathan Chancellor, Property Observer (Hold): “More time and confidence is needed before any rate rise.” Matthew Peter, QIC (Hold): ”No inflation to speak of, tepid growth, slowing housing market and an unsettled global outlook give the RBA more than enough reasons to remain on hold.” Noel Whittaker, QUT (Hold): “Housing not rising – markets wobbly – no reason to move.”
Nerida Conisbee, REA Group (Hold): ”Economy still isn’t strong enough.” Christine Williams, Smarter Property Investing (Hold): “Unemployment figures have reduced slightly across most states, however individual debt has increased per capita. Banks are continuing to tighten their policy to be in line with responsible lending with owner occupier and investment property loans, thus reducing their overall risk in the property segment.”
Besa Deda, St George Bank (Hold): “The inflation outlook does not warrant a near term rate increase from the RBA.”
Brian Parker, Sunsuper (Hold): ”Labour market and inflation developments aren’t robust enough to warrant any near term tightening, and the RBA is clearly unwilling to ease to boost growth. On hold for a long time!” Clement Tisdell, UQ-School of Economics (Hold): “No reason for a change.”
Bill Evans, Westpac (Hold): “Unlike the “immediate” Trump fiscal stimulus the Australian Government is adopting a more structured, cautious approach.”
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