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RBA Sees Strong Growth Cutting Unemployment, Lifting Inflation


Tuesday, 17 July 2018 09:26 WIB

AustraliaRBABank Sentral Australia,Reserve Bank of Australia


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Australia's central bank expects a strengthening economy to gradually cut unemployment and lift inflation, reiterating there's no strong case for a near-term policy move.

“Inflation remained low, reflecting low growth in labor costs and strong competition in retailing,” policy makers said in minutes of their July 3 meeting released in Sydney Tuesday. “The board assessed that it would be appropriate to hold the cash rate steady.”

The Reserve Bank of Australia also noted that trade tensions had extended beyond the U.S. and China and could escalate through “non-tariff measures such as administrative delays.” It warned that rising protectionism could damage global growth by undermining confidence and delaying investment decisions.

The Australian dollar was little changed at 11:38 a.m. in Sydney.

Australia has kept rates unchanged for almost two years at a record-low 1.5 percent, a pause designed to bolster financial stability and reflecting the reality of diminishing returns from any further easing. The RBA is playing an anchor role in the economy as it tries to boost confidence and provide time to soak up spare capacity in the jobs market and for inflation pressure to build.

That process is taking longer than expected and traders see little chance of a rate hike in the next year or so.

“Members continued to view the strengthening economy as likely to deliver further progress in reducing the unemployment rate and returning inflation to target,” the RBA said. “In these circumstances, members agreed that the next move in the cash rate would more likely be an increase than a decrease.”

The board noted that money market rates in Australia had been moving independently of other markets and funding costs for major banks had risen. It said while this was consistent with a recent pattern of rising funding pressures at quarter-end, “it was uncertain how persistent these pressures would be.”

The board also held a “detailed discussion” on high household debt in Australia, the minutes showed. The minutes noted that the situation was similar to other countries where low rates and financial deregulation had boosted borrowing power. But the board also said Australia’s result was exacerbated by the high level of home ownership by households and very high house prices.

The RBA repeated that much of Australia’s debt is held by higher-income and middle-aged households who are best placed to handle it. But the central bank also noted “a material share of household debt is held by lower-income households” that could be exposed in the event of a shock to the economy.

“Accordingly, members agreed that household balance sheets continued to warrant close and careful monitoring.”

Source: Bloomberg


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