Central Bank Views

RBA Maintained Status Quo, Upbeat On Growth And Employment, Concerned Over Household Spending And Inflation


As widely anticipated, RBA left the cash rate unchanged at 1.5% in November. As we await Friday' Statement of Monetary Policy, policymakers revealed at today' statement that the macroeconomic guidance has stayed largely unchanged. In short, policymakers remained upbeat about the growth outlook, although they expressed concerns over household spending and soft inflation. Despite recent weakness in the Australian dollar, RBA reiterated the warning that higher exchange rate would lead to slower growth and inflation. Given the overall unchanged tone of the central bank, we retain the view that RBA would keep the policy rate unchanged at least until 1H18.

On the dovish side first, RBA pointed out that an ongoing source of uncertainty is the outlook for household consumption, due to slow growth in household incomes and high debt levels. Policymakers noted that growth in housing debt has continued to outpace that of household income. Policymakers also acknowledged the persistent weakness on both headline and core CPI.

Yet, policymakers were upbeat over the growth outlook, retaining the forecast is for GDP growth to “pick up and to average around +3% over the next few years. The optimism was driven by improvement in the business conditions and the increase in capacity utilization. They also noted that “the outlook for non-mining business investment has improved, with the forward-looking indicators being more positive than they have been for some time”. Meanwhile, the strong employment market also added to optimism. The central bank expected the unemployment rate to fall gradually from its current level of 5.5%. They, however, raised concerns of the subdued wage growth. On the housing market, the RBA noted that property prices eased further in Sydney, but continued to rise in Melbourne. Policymakers judged that additional supply of apartments over the coming years should help ease the conditions in the latter. Other cities have shown little change during the intermeeting period.

All in all, recent mixed macroeconomic data has not altered the central bank' stance. We expect to see similar forecasts at the upcoming Statement of Monetary Policy. We also retain the view that RBA would keep the policy rate unchanged at least until 1H18.