RBA Keeps Rates On Hold For 17th Consecutive Month

As Household Consumption Poses Uncertainty

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Rates Unchanged

The RBA keeps rates on hold at its March meeting this week, leaving rates unchanged at 1.50%, marking the 17th consecutive month of keeping rates unchanged, which is equal to the bank’s 22 year record. Rates have now been sitting at the record low of 1.5% since September 2016. The decision where the RBA keeps rates on hold itself was not a surprise as the bank was widely expected to maintain policy at current levels, however, many players were caught offside by the governor’s comments in the accompanying statement.

Economic Growth To Rise

The tone of the bank’s statement took a hawkish turn as the bank revised higher its outlook for economic growth saying that it expects Australian GDP to average a little over 3% over the coming years as shown by the official forecasts given in the February SoMP which forecasts GDP of 3.25% in 2018 and 2019.

In the March statement, governor Lowe said that “the bank’s central forecast is for the Australian economy to grow faster in 2018 than it did in 2017”. However, while the outlook has been upgraded, rhetoric regarding the economy does not seem to track this sentiment. Lowe pointed out that growth in exports “is expected to recover from the temporary weakness at the end of 2017”. While this could be viewed as the governor attributing the rise in growth over 20178 to a pick-up in exports.

Household Consumption Poses Uncertainty

The RBA does not give independent estimates of its forecasts for household consumption though the treasury’s latest forecasts indicate that consumer spending is likely to rise over 2018. However, the RBA does highlight the household consumption outlook as a “continuing source of uncertainty”.

Although the bank’s assessment of growth here appears more dovish, the RBA does at lease sound confident about wages saying that “the rate of wage growth appears to have troughed”. This statement is a clear upgrade from prior statements with the data showing that annual wages are up 2.1% in the December quarter from 2% in the September.

Commentary around the housing market has also shifted somewhat with Sydney and Melbourne, the two major Australian markets, now described as having “slowed”.

Inflation To Remain Low

Regarding inflation, there was no change to the commentary with the bank judging that inflation is “likely to remain low for some time”. Referring to the Australian Dollar, the bank says that it “remains within the range it has been in over the past two years and regarding employment, the bank says that “forward indicators point to solid growth”.

Regarding the terms of trade, the bank says it is “expected to decline over the next few years! While the global economy was judged as having “strengthened over the pat year”.

In summary, the bank appears to be less confident about the overall growth outlook though the general tone and direction of sentiment remain supportive of a rate hike in the second half of 2018. As yet there is nothing to suggest that the RBA will move on rates quicker than expected though AUDUSD rose sharply in response to the meeting statement which traders interpreted as being broadly positive.

GDP Figures Print Weaker Than Expected in Q4

However, despite the rally, bulls were left disappointed as the latest GDP figures overnight came in soft with 4Q GDP printing 2.4% versus 2.5% expected. The quarter on quarter figures printed 0.4% against 0.5% expected, marking a deterioration into the end of the year which will no doubt further dampen hopes of an earlier RBA rate rise.


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