RBA to leave rates on hold longer than anticipated
Published on 03.04.2018 15:52

The Australian dollar will have to rely on other factors to reverse its recent decline after the latest interest rate decision today from the Reserve Bank of Australia.

As widely expected, the central bank kept rates on hold at 1.5 percent which mark’s the 20thconsecutive time without changes.

The following monetary statement garnered the most attention as investors sought clues on the potential timing of an interest rate hike in the nearest future but RBA Governor Philip Lowe seemed to brush off any chances of a rate hike over concerns about the economy and especially inflation.

“Inflation remains low, with both CPI and underlying inflation running a little below 2 per cent. Inflation is likely to remain low for some time, reflecting low growth in labour costs and strong competition in retailing. A gradual pick-up in inflation is, however, expected as the economy strengthens. The central forecast is for CPI inflation to be a bit above 2 per cent in 2018.” Mr Lowe said.

Bill Evans from Westpac also noted that the Governor’s statement was less than optimistic

“Whereas some previous statements from the governor could have been interpreted as mildly optimistic, there is nothing in Tuesday’s statement to fit that description,” he said.

“There is some uncertainty around the immediate growth outlook, tightening financial conditions are noted, a slowdown in improving labour market conditions is observed, and the outlook for consumption remains uncertain.” He added.

Some predict that after today’s interest rate decision, the RBA is in no hurry to lift interest rates and we may not see any move in rates until the end of 2019 and that will only happen if inflation reaches the RBA’s target rate.

"We expect that another year of below potential GDP growth and subdued rates of wage growth will keep underlying inflation lower for longer than the RBA expects” said Kate Hickie from Capital Economics'

"As a result, we doubt that rates will begin to rise until the second half of 2019." She added.

The material published in on this page is produced by the FIBO group companies, and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC; furthermore it has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

Andrew Masters

Analyst

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