The Reserve Bank of Australia held its monetary policy meeting on Tuesday last week. As widely expected, the Central Bank maintained its interest rates unchanged at 1.50%.
The interest rate decision marks an uninterrupted view on monetary policy for the past two years and three months. In its monetary policy statement, the RBA said that “The improvement in the economy should see some further lift in wages growth over time, although this is still expected to be a gradual process.”
The Central Bank’s decision to keep interest rates unchanged comes as inflation has been hovering near 1.9% over the past year. Consumer prices are still lower than the inflation target band of 2% – 3% which the RBA is targeting. The RBA’s preferred measure of inflation was seen lower at 1.75%.
The RBA Governor, however, expressed optimism. He said that there were positive signs that the Australian economy was picking up including wages and inflation. However, he said that progress was gradual.
The RBA expects the GDP to average around 3.5% this year and the next but expects growth to slow by 2020 due to slower exports.
Speaking about the labor market, the RBA said that the unemployment rate, which is currently at a 6-year low, would remain at the current levels as more and more workers are absorbed. “The stronger labor market has led to some pick-up in wages growth, which is a welcome development,” Lowe said.
Australia GDP slows in Q3 2018
Following the RBA’s meeting, later in the week, the quarterly GDP report was released. Data from the Australian Bureau of Statistics (ABS) showed that the GDP increased by 0.3% in the three months ending September 2018.
In the second quarter, the GDP expanded by 0.9%. The data signaled a sharp slowdown in the pace of growth after a robust gain in the second quarter. On an annualized basis, Australian GDP advanced 2.8% which was also below forecasts of a 3.3% increase.
The GDP report was in contrast to the RBA which sounded positive on the economic growth. Growth in the third quarter came from household consumption mostly. Incomes were seen rising modestly, adding weight to the fact that further strengthening in the Australian labor market could eventually push spending and inflation higher.
Still, as the RBA forecast a 3.5% GDP average for this year, the current data set is likely to disappoint unless the Australian economy posts a strong rebound in economic activity in the final quarter of the year.
Australia PMI falls the most since October 2017
The data comes as earlier in the week, the monthly PMI indicator signaled that the industry fell by seven points to 51.3 in November.
It indicated slower growth in the manufacturing sector and the decline in November was the lowest since October last year. Despite the decrease, a reading above 50.0 indicates expansion. The manufacturing industry maintained an expansionary streak of 26 consecutive months.
Economists view that while it was still too early to pinpoint the reasons, the winter season was partly to be blamed. New order inventories were seen declining while the drought conditions in some parts of Australia were seen having a significant impact on the input costs and sales.
Australia retail sales expanded by 0.3% in October
October’s retail sales came out as expected, rising 0.3% on a seasonally adjusted basis to 26.986 billion AUD, data from the Australian Bureau of Statistics showed. This came as retail sales for September was revised to 0.1% from 0.2% as previously reported.
Most of the sectors signaled increased sales while declines were seen in household goods and department stores. On a year over year basis, retail sales grew 3.5% compared to October 2017.
As retail sales came in line with estimates, the data signaled a moderate pace of spending for October.