The Board of Reserve Bank of Australia (RBA) today announced an “unchanged” cash rate for the seventeenth straight meeting, matching the record stretch of policy inactivity set way back in 1995-96. Back then, the cash rate was 7.5%, compared to today’s 1.5%. No economist surveyed by Bloomberg last week had expected a change in policy today, so the announcement was unsurprising.
The RBA commentary sounded familiar and consistent with the forecasts it released only a few weeks back. RBA officials still have a generally constructive domestic outlook – they expect growth in the economy to improve, the jobless rate to fall, wages growth to pick up and inflation to rise. All of these trends will be “gradual”, however, a word used several times in the RBA commentary.
There was an extended discussion today on trends in the labour market, including claims that skill shortages are emerging, and the assertion that wages growth probably has troughed. Curiously, the statement twice mentioned was the (record) high level of household debt – perhaps there is a message there. The only significant reference to AUD was that appreciation would be unhelpful.
On global conditions, the tone of the statement also was upbeat, including on the assessment of conditions in China, an economy that receives fully one-third of Australia’s merchandise exports. There was a mention that some central banks already had started to “withdraw some monetary stimulus”, but no direct mention of the trade protectionist madness widely reported earlier this week.
The latest market pricing (see chart), implies that the RBA will not start normalising policy until Q2 2019, more than a year away. This is despite these other central banks already lifting interest rates, and signs that the economy here is doing well enough. There was record jobs growth in 2017, after all, and last week’s business investment survey was encouraging. Inflation remains below the RBA’s 2-3% target zone, however, so officials do have time on their side.