July RBA Decision: Interest Rate Held At 1.50%

At this month’s meeting, the Reserve Bank of Australia (RBA) held the cash rate at the record low of 1.50%.

rba april decision

This marks the tenth month in a row that the RBA has held rates steady, with the last rate movement taking place in August 2016 with a 25 basis point rate cut.

Economists correctly predicted today’s decision, with all 24 economists surveyed by Bloomberg forecasting that the cash rate would remain on hold in July.

However, 8 of the 24 Bloomberg forecasters expect a rate hike by mid-2018, and 5 are still predicting rate cuts, while the remaining 11 economists see rates remaining unchanged.

RBA remains optimistic about the economy

In the monetary policy statement accompanying today’s decision, RBA Governor Philip Lowe said the unchanged cash rate is “consistent with sustainable growth in the economy and achieving the inflation target over time”.

The Governor expressed that the pick-up in the global economy is continuing, with the rise in commodity prices over the past 12 months boosting Australia’s national income.

The RBA also expects the Australian economy to strengthen gradually, as the country transitions to lower levels of mining investment at the end of the boom.

“Business investment has picked up in those parts of the country not directly affected by the decline in mining investment,” said Mr Lowe.

At the same time though, the RBA expressed that consumption growth remains subdued, “reflecting slow growth in real wages and high levels of household debt.”

Employment growth strong, wage growth weak

Mr Lowe says indicators of the labour market remain mixed, with employment growth being “stronger over recent months”.

“The various forward-looking indicators point to continued growth in employment over the period ahead,” said Mr Lowe.

Wage growth remains low, however, which the RBA says will likely continue “for a while yet”.

RBA says household debt has outpaced growth in household incomes

Mr Lowe once again reiterated his statements about the variation in the Australian housing market from last month’s statement.

The Governor noted how growth in housing debt has outpaced the slow growth in household indebtedness.

“The recent supervisory measures should help address the risks associated with high and rising levels of household indebtedness,” said Mr Lowe.

He also noted the recent increases to home loan rates for investor and interest-only loans, being announced frequently by many lenders.

Will there be a rate movement soon?

AMP Capital Head of Investment Strategy and Chief Economist Shane Oliver says the RBA is unlikely to change the cash rate “for the next year at least”.

Mr Oliver also says that the worst of the mining investment slump is over, but “risks around the consumer and a housing slowdown” is stopping the RBA from raising rates too soon.

CoreLogic’s property analyst Tim Lawless said today’s decision was “no surprise”.

“The decision comes on the back of upbeat labour market reports, with unemployment falling to 5.5. per cent since the last meeting and a trend towards more job advertisements,” said Mr Lawless.

But just last week, former RBA board member John Edwards said it is “distinctly possible” that the RBA could raise rates over 8 times in the next 2 years, “if the RBA’s economic forecasts prove correct”.

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