Reserve Bank of Australia

July 3, 2018

As was expected, Australia’s Official Cash Rate (OCR) was left at the record low of 1.50% that it has been at since a 25-basis point cut in August 2016. A released statement from Governor Lowe exhibits no near-term possible consideration of raising such. Several risk factors and other justifications are mentioned to keep the status quo of monetary policy.

 In Australia, short-term wholesale interest rates have increased over recent months. This is partly due to developments in the United States, but there are other factors at work as well. It remains to be seen the extent to which these factors persist.

One uncertainty regarding the global outlook stems from the direction of international trade policy in the United States.

One continuing source of uncertainty is the outlook for household consumption. Household income has been growing slowly and debt levels are high.

Wages growth remains low. This is likely to continue for a while yet.

Inflation is low and is likely to remain so for some time, reflecting low growth in labor costs and strong competition in retailing.

Housing credit growth has declined, with investor demand having slowed noticeably. Lending standards are tighter than they were a few years ago.

Further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual.

A significant departure from previous statements going back to 2016 is the deletion of language warning that a sustained rise of the Aussie dollar would delay the needed rebalancing of the economy. The mention of foreign exchange instead now reads, “the Australian dollar has depreciated a little, but remains within the range that it has been in over the past two years.”

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

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