Reserve Bank of Australia (RBA) chose to keep the interest rate steady at 1.5 percent.
Let’s look at the details of policy announcement to assess the bias of RBA.
- RBA notes that the pickup in global recovery continuing and labor markets tightened in many countries and growth forecast has been revised upwards. Growth in China supported by infrastructure spending and property construction but high levels of debt in China pose medium term risks. Increased commodity prices boosting Australia’s national income but terms of trade still likely to decline over the period ahead.(Neutral bias)
- Headline inflation down recently reflecting lower oil price. Core inflation low, so is wage growth. Interest rates have increased in the United States and likely to go up further and there is no longer an expectation of additional monetary easing in other major economies. Financial markets have been functioning effectively. (Neutral bias)
- Data has been in line with RBA’s expectation that growth will pick up gradually. Residential construction activity remains at a high level, but little further growth is expected. Retail sales have picked up recently, although slow growth in real wages and high levels of household debt are likely to constrain future growth in spending. The decline in mining investment is soon to run its course with non-mining investment improving and business conditions at a high level. (Neutral bias)
- Employment growth has been stronger, and employment increased in all states. Various forward-looking indicators still point to continued growth in employment over the period ahead and the unemployment rate would decline a little over the next couple of years. Wage growth low and likely to continue like that for a while. Inflation also low, likely to pick up gradually as economy recovers. (Neutral bias)
- The Australian dollar appreciated recently on the back of a weaker dollar. Stronger Aussie likely to contribute to subdued price pressure and weighing on the outlook for output and employment. It is likely to lead to a slower pick-up in economic activity and price pressure than the current forecast. (Mild dovish bias)
- Conditions in the housing market vary considerably around the country. In some markets, conditions are strong and prices are rising briskly. In other markets, prices are declining. In the eastern capital cities, a considerable additional supply of apartments is scheduled to come on stream over the next couple of years. Growth in rents is the slowest for two decades. Growth in housing debt outpacing slow growth in household income. Expects supervisory measures to help to address the issue. (Neutral Bias)
- Low-interest rates supporting the economy.
There have been very minor tweaks in this month’s statement; it basically remains same in tone and neutral in terms of future bias. The statement is shorter than the previous one.
The Australian dollar is little changed largely due to the neutrality in the monetary policy statement. The Australian dollar is currently trading at 0.796 against the dollar.
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