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RBA: Economy growing 'strongly'

RBA: Economy growing 'strongly'

The Reserve Bank has left the cash rate at a record low of 1.50 per cent for the 26th straight month (24th meeting).

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02.10.2018 04:08 PM

Reserve Bank: Economy growing “strongly”
Reserve Bank Board meeting

The Reserve Bank has left the cash rate at a record low of 1.50 per cent for the 26th straight month (24th meeting). The last rate change was a quarter percent rate cut on August 2, 2016.

What changed since the last meeting?

The Australian economy grew by 0.9 per cent in the June quarter and by 3.4 per cent on the year

The Australian jobless rate stands near a 6-year low at 5.3 per cent

Employment rose by 44,000 in August

Job vacancies rose by 0.6 per cent to record highs in the three months to August

A trade surplus of $1.5 billion was recorded in July – the 12th surplus in 15 months

The US Federal Reserve lifted the federal funds rate to 2.00-2.25 per cent

The Aussie dollar has consolidated near US72 cents

Dividends from ASX200 companies totalling $28.5 billion are being paid to shareholders

The NAB business conditions index rose from 12.6 points to a 4-month high of 15.2 points in August

Annual credit growth stands at 4.5 per cent – just above the slowest rate recorded in 4½ years.

The number of home loans rose 0.4 per cent in July but was down 6.2 per cent on the year

Petrol prices across the nation hover near 4-year highs of around $1.50-$1.60 a litre.

National home prices fell by 0.5 per cent in September to stand 2.7 per cent lower on the year.

The assessment

There are forces pulling the economy both ways. The job market is strong but higher petrol prices could crimp spending and boost inflation directly and through higher transport costs. The economy is growing at a faster rate than the perceived “speed limit” but softer home prices will lead to fewer homes being built and may also possibly serve to restrain consumer spending. The Reserve Bank has only tweaked the wording of the accompanying statement. In fact the statement is only nine words longer than the September statement. It’s worth noting that the Reserve Bank uses “strongly” to refer to economic growth and “robust” to describe owner-occupier credit growth. 

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.

What are the implications of today’s decision?

The job market is the area to watch. If the job market tightens further, employers may need to offer higher wages to attract staff. And then businesses would be prompted to lift selling prices to offset higher wage costs.

Published by Craig James, Chief Economist, CommSec
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