Australia rates on hold ahead of growth data

Australia holds rates at record low, signals weak growth
Australia holds rates as RBA plays long game on economy's growth
Author

07 June, 2017

Economists said the bank would want to digest the growth data before making any concrete rate-related decisions, with gross domestic tipped to come in as low as 0.1 per cent on-quarter and 1.5 per cent on-year in the first three months of 2017.

"Not enough has changed since the last meeting, which saw the Reserve Bank get more optimistic about growth and inflation, and the fact that it's too early to declare victory concerning the Sydney and Melbourne housing market will lead to a situation where they'll leave rates on hold", Mr Oliver said.

"The RBA has opted to downplay the accumulation of evidence that first-quarter GDP will be soft", said David Plank, head of Australian economics at Australia & New Zealand Banking Group Ltd. Projections for tomorrow's first quarter GDP report are for a 0.2% quarter-on-quarter growth. Philip Lowe, the RBA governor, said that his expectations are for economic growth "to increase gradually over the next couple of years to a little above 3%".

The Australian dollar rose, buying 74.90 U.S. cents at 2:58pm in Sydney compared with 74.74 United States cents prior to the decision. Slow growth in real wages is restraining growth in household consumption.

Wide variations in the housing market have also contributed to uncertainty in the economy.

Housing "prices have been rising briskly in some markets, although there are some signs that these conditions are starting to ease", said Lowe, adding that lenders have increased their mortgage rates, particularly for investors and interest-only loans.

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The jobless rate dropped to 5.7% in May after a second straight month of solid employment gains, yet wage growth has been stagnant, suggesting a fair amount of slack in the market.

"The last thing the RBA wants is another surge in house price growth, fuelled by unsustainable growth in household leverage", he said.

While much of the market commentary in recent months has pointed toward an upward trajectory for the official cash rate, there are growing signs that the RBA's easing cycle may not be over.

"They are going to overlook the slowdown in GDP as a temporary blip".

However, Westpac has now halved its GDP forecast to a 0.2 per cent rise for the quarter and Commonwealth Bank has lowered its prediction from 0.3 per cent to 0.1 per cent, while National Australian Bank is sticking with its call for a 0.1 per cent contraction in the quarter "with slight downside risks".


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