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Tuesday 13

November, 2018 7:15 AM



Rates on hold for 27th month

Rates on hold for 27th month

The Reserve Bank has left the cash rate at a record low of 1.50 per cent for the 27th straight month.

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06.11.2018 03:59 PM

Reserve Bank: Stronger growth, still low inflation
Reserve Bank Board meeting

The Reserve Bank has left the cash rate at a record low of 1.50 per cent for the 27th straight month (25th meeting). The last rate change was a quarter percent rate cut on August 2, 2016.

What changed since the last meeting?

The Consumer Price Index rose by 0.4 per cent in the September quarter and by 1.9 per cent on the year.

“Underlying” inflation remains below the Reserve Bank’s 2-3 per cent target band.

The Australian jobless rate stands at a 6-year low at 5.0 per cent.

Retail trade rose 0.2 per cent in September and rose 0.2 per cent in the September quarter.

The Australian dollar has consolidated near US72 cents.

The NAB business conditions index rose by 1 point to a 3-month high in September.

The weekly consumer confidence index is 116.8 – above longer-term averages.

Annual credit growth stands at 4.6 per cent – just above the slowest rate recorded in 4½ years.

The rolling annual budget deficit has fallen to $3.4 billion or 0.2 per cent of GDP.

Petrol prices across the nation have started to ease, down 4.4 cents in the week to November 4.

National home prices fell by 0.5 per cent in October to stand 3.5 per cent lower on the year.

The trade surplus increased from $2.3 billion to $3.0 billion in September.

The manufacturing expansion is the longest since 2005.

The assessment

The Reserve Bank has pre-empted its own quarterly report by revealing new forecasts. The economy is now tipped to grow by 3½ per cent in 2018 and 2019. As a result, the unemployment rate is expected to fall to 4¾ per cent by 2020. Having said that – unemployment could hit this target in the next few months! Inflation is expected to be 2¼ per cent in 2019 and “a bit higher” in 2020. The Reserve Bank is painting an even more favourable picture than a few months ago – stronger economic growth, lower unemployment, but still inflation below the midpoint of the 2-3 per cent target band until 2020. The Reserve Bank hasn’t changed its policy stance one iota.

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 timesfrom 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 remains the area to watch. There are more reports of shortages of skilled labour. The question is how much and how quickly wages rise in response. The wage price index is released on Wednesday week. 

Published by Craig James, Chief Economist, CommSec
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