Wed, Apr 04, 2018 - Page 10 News List

RBA keeps rates at record low

‘SOLID GROWTH’:Inflation remains below target, while the Australian dollar is too valuable, despite favorable business conditions, which means the move was expected


The Australian central bank yesterday kept interest rates at a record low, with the board maintaining a neutral policy bias as wage growth remains stubbornly low and inflation below target.

The Reserve Bank of Australia (RBA) has not adjusted rates since August 2016, following a series of cuts from November 2011 that took it to 1.5 percent in a bid to boost non-mining sectors of the economy.

Its decision to stay on hold followed data last month showing that while the economy added 17,500 jobs in February, it was against an expected 20,000 increase.

Policymakers are banking on continued low interest rates and rising investment to drive hiring and gradually encourage wage growth.

“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,” central bank governor Philip Lowe said. “Notwithstanding the improving labor 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.”

Inflation also remains below target and the Australian dollar too high, despite solid business conditions, meaning the decision to not move was widely expected.

“The low level of interest rates is continuing to support the Australian economy,” Lowe said. “Further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual.”

Given this, 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.”

Underlying or core inflation — which strips out volatile items and is closely watched by the central bank — is at an annual 1.9 percent, just below its target band of 2 to 3 percent.

First-quarter inflation statistics are due later this month.

The monetary statement was the first since data showed economic growth lifted by 0.4 percent in the fourth quarter of last year, down from a revised 0.7 percent in the previous three months.

That gave an annual growth rate of 2.4 percent, slightly below the central bank’s forecasts.

Lowe said the bank expected it to pick up this year.

“Business conditions are positive and non-mining business investment is increasing. Higher levels of public infrastructure investment are also supporting the economy,” he said.

However, a continuing source of uncertainty was the outlook for household consumption, with household incomes growing slowly and debt levels high.

TD Securities Inc’s Annette Beacher said that the consensus was that rates would remain at 1.5 percent into next year and “hence the tone of these monthly statements are not expected to change for some time.”

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