RBA seen holding rate at 1.50 pct this year and into next year: St George Economics

The Reserve Bank of Australia (RBA) is expected to hold its interest rate at 1.50 percent through this year and next. While the central bank remains increasingly more positive on the domestic outlook, there is a range of factors that remain a concern or the RBA. Echoing the view is the statement from the monetary policy meeting held early today, St George Economics reported.

The RBA has left the cash rate unchanged at 1.50 percent at its board meeting today, as widely expected. Given the lack of new developments over the past month, there were no major surprises in the accompanying statement.

A key change however, was the RBA’s more upbeat view on non-mining business investment, noting that "there have been more consistent signs that non-mining business investment is picking up". The RBA also highlighted that "a large pipeline of infrastructure investment" was "also supporting the outlook".

The RBA remains of the view that economic growth would "gradually pick up" over the coming year. In regards to the labour market, the RBA somewhat downplayed the recent strength. The RBA recognized that employment had "continued to grow strongly over recent months" but that the unemployment rate was "expected to decline only gradually over the next couple of years", hinting that the RBA is still recognizing that spare capacity remains in the labour market.

The fact that wage growth will remain low for some time, the recent appreciation in the Australian dollar and the high rate of household indebtedness continued to be highlighted as concerns for the RBA.

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