Reserve Bank of Australia

May 1, 2018

Notwithstanding a lengthy 21 months since the last change of Australia’s official cash rate — a cut of 25 basis points to 1.5% — members of the RBA Board remain in no hurry to start rate normalization. A post-meeting statement released today concluded that “further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual.”

In verbal remarks made later this day, Governor Lowe underscored that the gradual pace of adjustment has been the operative factor in repeatedly persuading policymakers to delay normalization and allow the recovery to dig deeper roots:

Our central scenario is for a gradual pick-up in wages growth, a gradual lift in inflation, and a gradual reduction in the unemployment rate. While we might like faster progress, it is encouraging that things are moving in the right direction and are likely to continue to do so.┬áIf this is how things turn out, it is reasonable to expect that the next move in interest rates will be up. This would reflect conditions in the economy returning to normal. In our discussions today, though, the Board again agreed that there was not a strong case for a near-term adjustment in the cash rate. This reflects our view that the progress in moving towards full employment and having inflation return to the middle of the target range is likely to be only gradual. The Board’s view is that while this progress is occurring, the best contribution we can make to the welfare of the Australian people is to hold the cash rate steady and for the Reserve Bank to be a source of stability and confidence.

Prior to the August 2016 rate cut, there had been another 25-basis point reduction in May 2016. The OCR prior to the last quarter of 2012 had been 3.5%.

Copyright 2018, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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