As expected by the market, the Reserve Bank (RBA) kept its key cash rate steady at 1.0% in September.
The bank retained an easing bias in the accompanying policy statement from Governor Phil Lowe and again indicated a willingness to cut the cash rate again should the need arise.
“The Board will continue to monitor developments, including in the labour market, and ease monetary policy further if needed to support sustainable growth in the economy and the achievement of the inflation target over time,” RBA governor Philip Lowe said.
Dr. Lowe said Australian economic growth in the first half of the year was lower than what the bank expected with “household consumption weighed down by a protracted period of low-income growth and declining housing prices and turnover.”
The AMP’s Chief Economist, Dr. Shane Oliver pointed out yesterday afternoon; “the RBA is still waiting to see what sort of boost to growth the rate cuts of June and July and the Federal Government’s tax cuts for low and middle-income earners provide.”
However, while these will help avoid recession we doubt that they will be enough to generate decent growth and the evidence from July is not that encouraging!
“While house prices in Sydney and Melbourne may be bouncing higher, growth looks to have been far weaker than the RBA expected in the June quarter with only trade and public spending keeping the economy from going backwards, the growth outlook remains weak with the housing construction downturn gathering pace and threat from Trump’s trade war increasing, and there is no sign of any pick up in wages growth and inflation with unemployment looking more likely to drift up than down.
“So while the RBA is content to wait, for now, we continue to see two more rate cuts this year taking the cash rate down to 0.5%, with the next cut likely coming next month,” Dr. Oliver wrote yesterday.
