RBA holds cash rate at 1.5 per cent

Alex Druce
(Australian Associated Press)


Reserve Bank Governor Philip Lowe says Australia can expect inflation to rise, but unemployment to fall past its current six-year low of 5.3 per cent, as the central bank left the cash rate unchanged at 1.5 per cent for the 26th month in a row.

Dr Lowe on Tuesday again called out weak household spending as a source of uncertainty for the economy a factor in the RBA board’s decision to leave the official interest rate at its current record low.

But he also pointed to a falling unemployment rate, which he noted was at its lowest in six years at 5.3 per cent.

“A further gradual decline in the unemployment rate is expected over the next couple of years to around five per cent,” he said.

The RBA boss referred to the potential impact of tighter credit conditions on mortgage holders, though he noted that mortgage rates remained low, and the competition for borrowers of high credit quality was still strong.

“Conditions in the Sydney and Melbourne housing markets have continued to ease and nationwide measures of rent inflation remain low,” he said.

JP Morgan analyst Sally Auld said Dr Lowe’s comments on the housing market remains the same – growth in investor credit has slowed but growth in owner-occupier credit is robust.

“In aggregate, credit conditions are tighter but mortgage rates are low and there is competition for good quality borrowers,” she said.

“For a central bank that desired an orderly adjustment towards slower rates of credit and house price growth, recent outcomes are unlikely to be causing much anxiety.”

The Australian dollar bounced to 72.34 US cents after Tuesday’s decision, but fell back to $72.22 about 30 minutes after the announcement.

The RBA has forecast headline inflation to increase further from its current level of 2.1 per cent in 2019 and 2020.


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