Cash Rate Outlook: RBA’s Benchwarmers

• The Reserve Bank (RBA) left the cash rate unchanged at 1.50% at its board meeting today as widely expected.
• In the accompanying statement there was recognition of some rising downside risks.
• Globally, the RBA highlighted the uncertainty with regards to international trade policy and also strains in emerging market economies.
• There was also acknowledgement of the weaker housing conditions, particularly in Sydney and Melbourne. The RBA notes that “lending standards are tighter than they were a few years ago” and also makes mention of the increase in short-term wholesale interest rates in recent months.
• There was however, a slightly more upbeat tone on the labour market – the RBA states that the outlook “remains positive”. The RBA points to the high vacancy rate and elevated forward-looking indicators. Indeed, job ads and vacancies suggest strong employment growth over coming months, and support the view that the unemployment rate will fall over time
• The RBA has continued to highlight the importance of the labour market in its interest-rate-setting decisions. Expectations that job growth will be sufficient to bring down the unemployment rate, albeit slowly, continues to suggest that the next move in the cash rate will be higher. However, spare capacity is likely to continue for some time, and suggest limited upward pressure on wages.
• There are increasing downside risks emanating from the global economy and domestically, from the housing sector. Moreover, the risk of a tightening of lending standards and recent upward pressure on wholesale funding costs highlighted by the RBA today further points to a risk that a rate hike will be later rather than sooner. We expect the RBA will leave rates on hold for an extended period.

 

Please see the attached report for more information.

Download.pdf Back to News