Matthew Hassan, Research Analyst at Westpac, explains that as expected, the Reserve Bank Board decided to leave the cash rate unchanged at 1.5% at its July policy meeting.
Key Quotes
“The Governor’s decision statement was a little less positive on the global front, and acknowledged uncertainty around the rise in Australia’s short term wholesale interest rates, but retained the core view of growth averaging a bit above 3%yr and an eventual lift in inflation.”
“The closing paragraph of the statement was unchanged, retaining the key line that: “Further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual.”
“Commentary on the global economy was a little more mixed. Last month’s assessment that “The global economy has strengthened over the past year” was replaced with “The global economic expansion is continuing” – suggesting the pace is no longer accelerating. The picture is still broadly positive although uncertainties around trade policy and strains in a few emerging markets were again noted.”
“The local data flow continues to be in line with the RBA’s growth view – the strong March quarter GDP result and continued pick up in non-mining business investment noted, as well as the strength in public infrastcture.”
“The Governor’s statement was more forthright about prospects for jobs and wages growth, asserting up front that “the outlook for the labour market remains positive”.”
“There was a notable, but secondary, shift in the language about the exchange rate with the July statement dropping the comment that “an appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast.”
“The implication is that the Bank is less wary of a rising Australian dollar disrupting the outlook with the currency at 74c vs 80c at the start of the year.”
“Conclusion
While there were again several points of interest, the July decision statement showed little substantive change. The RBA still looks to be firmly on hold and prepared for a long wait. The minutes should reveal more about the Board’s deliberations – the discussion of short term wholesale interest rates will be of particular interest as well as the risks around a further tightening in lending standards. However, there’s unlikely to be any shift in rhetoric from the Bank any time soon. We confirm our long held view that the official cash rate will remain unchanged throughout 2018 and 2019.”
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