RBA Review – Holding Rate On Record Low and Turning More Dovish on Economic Outlook

Central banks news

Unsurprisingly, RBA left the cash rate unchanged at 1.5% for a 29th meeting.
While the members acknowledged more downside risks on the economic outlook, they maintained the monetary policy forward guidance unchanged. However, Aussie weakened after the announcement, amidst heightened expectations that the central bank would cut the policy rate later this year or in early 2020.

The mild change in the policy statement nonetheless reflected a more dovish stance on the economic outlook. Concerning the global developments, RBA retained the view that “the outlook for the global economy remains reasonable” and “downside risks have increased”. It added that “growth has slowed” and removed the language that the global economy “grew above trend in 2018”. On international trade, the central bank acknowledged that growth has “declined and investment intentions have softened in a number of countries”.

Domestically, the central bank remained upbeat about the employment market, noting that it remained “strong” and “there has been a significant increase in employment”. However, the members removed the expectations that the unemployment rate would “further decline” to 4¾% “over the next couple of years”. Yet, the members acknowledged softer economic growth, as suggested by GDP data. they acknowledged that “GDP rose by just 0.2% in the December quarter to be 2.3% higher over 2018”. As such, they removed the forecast that the domestic ecoony would “growth by 3% this year”. The members attributed that moderation in household spending growth to “the protracted period of weakness in real household disposable income and the adjustment in housing markets”. They also noted the negative impact of “the drought in parts of the country”. These drawbacks were offset by the rise in government spending on public infrastructure and an upswing in private investment.

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Policymakers retained that inflation remained “low and stable”. They expect core inflation to pick up in coming year, adding that the process would be gradual and “has been taking a little longer than earlier expected”.

On the financial market situation, the members suggested that “risk premiums remain low”. They also noted that Australia’s “long-term bond yields have fallen to historically low levels and short-term bank funding costs have moderated further”. All in all, the members still judged the global monetary policy situation remained accommodative. Comments on Australia’s housing market were largely unchanged. The only difference was the first sentence, at which RBA noted that “the adjustment in established housing markets is continuing, after the earlier large run-up in prices in some cities”. In previous meeting, it pointed out the slowdown was mainly in Sydney and Melbourne.

The forward guidance on the monetary policy remained largely unchanged. The RBA indicated that “it was appropriate to hold the stance of policy unchanged at this meeting”. It added this time the pledge to “monitor developments and set monetary policy to support sustainable growth in the economy and achieve the inflation target over time”. This stressed that the next rate move would be data-dependent.

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