RBA Leaves Cash Rate Unchanged at 1.5% For 23rd Consecutive Month

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  • #17992
    Corporal
    Participant

    The Reserve Bank of Australia (RBA) as expected…

    [article]1043[/article]

    #17999
    TradersCom
    Keymaster

    Speech Remarks at Reserve Bank Board Dinner
    Philip Lowe Governor
    Perth – 4 September 2018

    On Global Risks

    Notwithstanding the positive global picture, there are a number of international uncertainties that we are monitoring closely. One is the possibility of an escalation in the current trade disputes. If this were to happen, it would materially affect trade flows and investment plans around the world. As a country that has benefited greatly from an open rules-based international system, Australia has a strong interest in this not happening.

    Another uncertainty we are watching closely is the possibility of a material lift in inflation in the United States. The United States is experiencing a large fiscal stimulus at a time when the economy is at full employment and is growing quickly. This is an unusual combination to say the very least. Past experience suggests that it could lead to inflation increasing significantly. Financial markets are, however, heavily discounting this possibility, which means that if it did take place it would come as quite a surprise, with repercussions for markets and the real economy.

    We are also monitoring carefully the financial and economic problems in a number of emerging market economies with structural or institutional weaknesses, including Turkey, Brazil and Argentina. If these problems were to escalate, they could put strains on parts of the global financial system.
    So these are some of the international issues we are keeping an eye on at the moment.

    #18000
    TradersCom
    Keymaster

    Speech Remarks at Reserve Bank Board Dinner
    Philip Lowe Governor
    Perth – 4 September 2018

    On Domestic Risks

    Domestically, the Board is closely monitoring housing markets across the country and trends in housing finance. Housing credit growth has slowed, which, from a medium-term perspective, is a positive development. Our assessment is that this slowing largely reflects reduced demand for credit by investors, although there has been some tightening in the supply of credit as well. With housing prices falling in a number of cities, largely due to a shift in the underlying fundamentals, investors no longer find it as attractive to invest in residential property as they once did. This is a normal part of the cycle. While credit standards have been tightened, mortgage credit remains readily available.

    I would note that some banks have increased their mortgage rates recently in response to somewhat higher interest rates in short-term wholesale markets. A much less remarked upon fact is that the average mortgage rate paid in Australia has fallen since August last year, as lenders have increased their discounts. I encourage anyone with a mortgage to shop around: there are some very good offerings out there. We can all play a role in promoting strong competition in our financial sector by shopping around and taking advantage of the good deals that are out there.

    Another set of issues that the Board continues to pay close attention to is the outlook for wages growth and inflation. Wages growth has been quite low recently. For some time my view has been that some increase in aggregate wages growth would be a welcome development, especially if it is backed by stronger productivity growth. Many business people that I speak to recognise that a pickup in overall wages growth would be a positive development from a macro perspective, although not from the perspective of their individual business. So there is a tension there. Our expectation is that wages growth will pick up from here, but the pick-up is likely to be only gradual. Firms are currently reporting a record number of job vacancies and increasingly telling us that it is hard to find workers with the right skills. One way of dealing with this increasing tightness in the labour market is, of course, to lift wages. We expect that as this happens, inflation will also lift towards the midpoint of the medium-term inflation target, although this, too, is likely to be a gradual process.

    http://www.rba.gov.au/speeches/2018/pdf/sp-gov-2018-09-04.pdf

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