Reserve Bank Board meeting
The Reserve Bank has left the cash rate at a record low of 1.50 per cent for the 21st straight month (19th meeting). The last rate change was a quarter percent rate cut on August 2 2016.
What changed since the last meeting?
- China outlined moves to open its economy further.
- Global sharemarkets rose sharply over the past month.
- The Consumer Price Index rose by 1.9 per cent over the year to March.
- Annual underlying inflation edged higher to 2 per cent.
- “Upstream” producer prices are growing at the fastest annual rate in four years.
- The rolling annual budget deficit has narrowed to $14 billion or 0.8 per cent of GDP.
- The number of home loans fell 0.2 per cent in February – the fifth fall in six months.
- Employment rose by just 4,900 in March with the jobless rate stable at 5.5 per cent.
- The Aussie dollar eased by 2 per cent over the past month to around US75 cents.
- Business conditions eased from near-record highs in March.
- Annual credit growth lifted from a 3½-year low of 4.9 per cent to 5.1 per cent.
- M3 money supply rose by 3.7 per cent over the year – the slowest pace in 25 years.
- Capital city home prices fell 0.3 per cent in April.
- The petrol price rose to 3½-year highs.
The Reserve Bank assessment
- Well it took a bumper 770 words to say that interest rates are going to remain stable for another month. Interest rates are still at record lows – emergency levels. But they don’t look like moving until late this year at the earliest. The Reserve Bank says growth will be a bit above 3 per cent in 2018 and 2019. The last forecasts put growth at 3 per cent in 2018 and 3.25 per cent in 2019, so there is little change in view. Faster economic growth will lead to faster employment growth, higher wages and prices and eventually higher interest rates. But the Bank stresses that the process will be gradual.
Perspectives on interest rates
- The Reserve Bank has left the cash rate at 1.50 per cent. The previous move was a rate cut in August 2016 (25 basis points). There have now been 12 rate cuts since November 2011, with the Reserve Bank cutting rates from 4.75 per cent to 1.50 per cent.
- The Reserve Bank had previously lifted rates seven times from October 2009 to November 2010 – a total of 1.75 percentage points, from 3.00 per cent to 4.75 per cent.
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What are the implications of today’s decision?
- The Reserve Bank remains positive but an extended period of stable rates is likely. The next move in rates is up, but not until later in 2018.