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On Hold RBA Remains On Replay

No rate rise from the Reserve Bank yesterday for the 22nd month in a row - a new record ahead of the first quarter national accounts and GDP report later today (Wednesday).

The RBA board’s decision to leave the cash rate steady at 1.50% came as no surprise to the market as it was widely forecast.

Once again the post meeting statement from Governor, Phil Lowe was heavy on the use of the word ‘gradual’ to describe the pace of change. For example the statement again said that progress on reducing unemployment and meeting inflation targets was expected to be “gradual”.

Mr Lowe highlighted recent political instability in Italy and “concerns about the direction of international trade policy in the United States and economic developments in a few emerging market economies”.

The RBA said wage growth remained low but that “the stronger economy should see some lift in wages growth over time”. Inflation was also expected to remain low- both a reiteration of comments from past post meeting statements.

The bank reiterated its outlook for Australian economic growth. It expects gross domestic product growth to pick up to “a bit above” 3% in 2018 and 2019.

AMP Chief Economist, Dr Shane Oliver wrote “there was nothing in the RBA’s latest Statement to suggest an imminent change in monetary policy.

"While the global backdrop (assuming no upset from trade wars, Trump or Italy), business conditions, non-mining investment and infrastructure activity are positive and will support growth, uncertainty remains around the outlook for consumer spending, household debt is high, banks are tightening lending standards, wage growth and inflation remain low and will pick only gradually and house prices are falling.

"As a result, we remain of the view that the RBA is likely to remain on hold for a long time yet and we don’t see a rate hike until 2020 at the earliest. And given the weakness in home prices and the negative wealth effect that will flow from that its premature to rule out the next move in official rates being a cut,” Dr Oliver wrote yesterday afternoon..

Today’s GDP report is still expected to see quarter on quarter growth of around 0.8% for an annual rate of 2.7%. But some forecasts have a figure around 0.6% and an annual growth rate around 2.5% (subject to revisions).

Yesterday’s current account report for the March quarter showed a sharp improvement as the trade surplus remained in surplus for the three months.

The Australian Bureau of Statistics said the improvement will contribute 0.3 percentage points to GDP growth in the quarter. Economists had tipped a 0.5 percentage point contribution.

The current account report also showed a sharp improvement in our terms of trade for the quarter to 3.3% against a rise of 0.1% in the December quarter.

That could produce a nice offset to weak wage growth, while company earnings are back growing strongly as well.

View More Articles By Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

At the AFR he was a finance writer, Finance Editor, News Editor and Chief of Staff. At the Nine Network he was supervising producer of Business Sunday for more than 16 years. He has also written for other online and analogue print publications here and overseas.



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