RBA Chalks Up Two Years On Hold

Marco Green
August 10, 2018

How positive can the data - that only ever describes the past - actually become to be able to cover up the [larger] risks the United Kingdom economy is facing?'AUD Benefits from Central Bank Speculation and Risk-Sentiment Investors have found risky commodity-correlated currencies like the Australian Dollar more appealing since the end of last week, due to rising commodity prices and stronger market performance in China. In the interim, once-off declines in some administered prices in the September quarter are expected to result in headline inflation in 2018 being a little lower than earlier expected, at 1¾ per cent.

Australia's population growth remains high in comparison with other advanced economies.

Reserve Bank of Australia Governor Philip Lowe heralded Australia's population surpassing the 25 million mark at a lunch in the Grand Ballroom of the Westin Hotel in Sydney on Wednesday, which high-powered business guests paid $225 to attend. Keep in mind that this was the first month in which the U.S. imposed tariffs on China imports.

Lowe is due to speak in Sydney tomorrow and the central bank will release its quarterly updated forecasts for economic growth and inflation Friday. These higher money-market rates have not fed through into higher interest rates on retail deposits.

"The steady rate setting has a lot to do with stubbornly low inflation, record high household debt, a slack labour market and, more recently, falling dwelling values", CoreLogic head of research Tim Lawless said. The GDP for 2018 and 2019 is expected to average slightly above 3 per cent. The business environment in the country is positive with increased improvements in the business confidence levels.

"But the peak in the housing construction cycle, uncertainty about the outlook for consumer spending, the weakening Sydney and Melbourne property markets, low inflation and wages growth and tight bank lending standards all argue against a rate hike".

Lowe and the RBA team upgraded their forecast for unemployment Tuesday, with the unemployment rate now expected to fall as low as 5% during the next two years, down from the previous projection of around 5.5%. "Our more cautious forecasts suggest that rates may not rise until late in 2019, if not sometime in 2020". "There is competition for borrowers of high credit quality". The main opposition Labor party may dilute planned income tax cuts that - in an environment of stagnant wages and rates - are one of the few options to boost wages.

A combination of both domestic and global factors have helped the Australian Dollar to see slightly stronger demand this week so far, and the risky commodity-correlated currency has easily registered gains against the Pound, with the British Pound to Australian Dollar (GBP/AUD) exchange rate hitting its worst levels in over a month.

Lowe said the outlook for the labor market "remains positive" and predicted a further gradual decline in unemployment "over the next couple of years to around" 5 per cent. Thanks to a recent downturn in housing prices, the real estate sector is expected to weigh on future growth.

Other reports by Click Lancashire

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