6 Jun 2017
Reserve Bank of Australia leaves rate unchanged
At today’s meeting, the RBA decided to leave the cash rate at 1.50%, following the same decision in May. The decision was expected given underlying economic conditions still warrant accommodative policy.
Immediately post the announcement, equity markets had fallen (due to the RBA’s rather upbeat comments) whilst the Australian dollar was flat. The decision comes as no surprise given we expect the RBA to be on hold this year and most of next year.
The main messaging in the statement was very similar to May’s statement apart from a few minor points. Those included the noting of recent commodity price falls; that business conditions had improved and business investment has picked up; that economic growth had slowed in the March quarter; the slow growth in wages is restraining household consumption; and that lenders have been increasing mortgage rates, particularly those paid by investors on interest only loans.
The Board kept their rather upbeat rhetoric on inflation and economic growth trending higher over the next couple of years. However, current trends in data, along with mixed and softer underlying components within that data, lead us to believe that the RBA’s rhetoric is more hopeful than likely. The RBA may be using some positive tones in their messaging in order to lift confidence in the economy and also to stave off any expectations of further rate cuts, which can become somewhat self-perpetuating.
The announcement explicitly left out forward guidance on future rate moves. The current low rate setting remains required to help the economy transition, assisting to put downward pressure on the Aussie dollar and upward pressure on inflation.
