RBA keeps rates steady. GDP grows at a slower pace.

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Reservebankofaustalia

The Reserve Bank of Australia kept the key interest rate unchanged at 1.50% as widely expected. The RBA governor Philip Lowe noted that the low interest rate policy was accommodative to help the Australian economy to grow.

The central bank lowered interest rates in May last year bringing it to a historic low of 1.50%.

The central bank did not give any fresh clues on the forward guidance as it maintained that keeping interest rates steady would be consistent for the economy and also help in achieving the inflation target.

The central bank’s statement was seen to be broadly unchanged from the November monetary policy meeting. The central bank however maintained an optimistic view on the labor market.

It said that the outlook on business and public investment was optimistic and this could help further strengthen the labor market.

At the same time, the RBA was concerned as it expects uncertainty on whether the labor market would help in improving household spending. “There are reports that some employers are finding it more difficult to hire workers with the necessary skills,” the RBA’s statement said.

The central bank said that the recent data suggested that wage growth was still low. It expects this trend to continue for a while. Reflecting on the GDP, the RBA said that the growth rate was in line with the recent trend. The central bank forecast showed that the Australian GDP would average around 3% in the coming years.

Australia retail sales rises 0.5% on the month

Ahead of the RBA’s meeting, the retail sales report showed a 0.5% increase on the month. This beat forecasts of a 0.3% increase by a strong margin and was higher than the 0.1% increase registered the month before.

Breaking down the report, data showed that retail sales for household goods fell 0.6%. Food, cafes and restaurants showed a modest increase which managed to offset the declines from the household retail sector.

Despite coming out strong, the data showed that the retail spending was still fragile. This was consistent with the RBA’s view about the low wage growth and the impact on the household spending.

Australian GDP grows at a slower pace in Q3

The third quarter GDP data showed that the Australian economy expanded at a pace of 0.6% in the quarter ending September. This was below forecasts of a 0.7% increase. However, the second quarter data was revised higher to show a 0.9% increase.

This pushed the annual GDP growth rate in Australia to 2.8%. It was slightly below forecasts of a 3.0% increase. Net exports remained flat during the period although there was increased output in the mining production. Exports of coal and iron ore declined pushing the terms of trade to just 0.4%.

Australia annual GDP growth rate: 2.8% (Q3 2017). Source: Tradingeconomics.com
Australia annual GDP growth rate: 2.8% (Q3 2017). Source: Tradingeconomics.com

Breaking down the data, the compensation of employees rose 1.2% with nearly 17 out of 20 industries posting positive growth. Engineering construction was seen rising at a pace of 6.3% but household consumption expenditure grew just 0.1% on the quarter.

The GDP data was consistent with the RBA’s view that while it expected GDP to average around 3% in the coming year, household spending remained weak. This comes amid higher household income. On the brighter side with increasing household income and reduced spending the savings ratio was seen rising for the first time in the recent quarters.

Commenting on the GDP data, the Australian Bureau of Statistics chief, Bruce Hockman said that there was a noticeable increase in activity in private business investment as well as public infrastructure spending.

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John has over 8 years of experience specializing in the currency markets, tracking the macroeconomic and geopolitical developments shaping the financial markets. John applies a mix of fundamental and technical analysis and has a special interest in inter-market analysis and global politics.

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