Today, the Reserve Bank of Australia (RBA) kept its interest rate unchanged as expected. International trade policy, persistently subdued wage growth and tightening credit conditions remain concerns for the RBA, according to analysts at Wells Fargo.
Key Quotes:
“While the next move by the RBA will likely be an increase in rates, policymakers remain cautious, as higher rates have some potential to stall economic growth.”
“Overall economic conditions simply do not yet warrant a tightening of rates. Despite solid first quarter GDP growth, the Australian economy continues to be constrained by an indebted consumer, which is an area of focus for policymakers.”
“The tightening in credit conditions, as well as housing indicators, suggests, in our view, that downward pressure on the housing market is likely to persist.”
“While underlying growth trends in the Australian economy are gradually firming, inflation remains contained to date, restraining the RBA from tightening policy at this time. Broad improvement in global growth and commodity prices could be supportive of the Australian currency in the near-to-intermediate term; however, a larger gain in the currency is likely not to materialize for some time. We expect the RBA to eventually raise rates, but not until there is greater evidence of higher wages and inflationary pressures.”
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