AU: RBA Announcement


Mon Jul 03 23:30:00 CDT 2017

Consensus Actual Previous
Change 0bp 0bp 0bp
Level 1.5% 1.5% 1.5%

Highlights
The Reserve Bank of Australia has again left its main policy rate unchanged at a record-low 1.50 percent, in line with the consensus forecast. This rate was last changed in August last year, when it was cut by 25 basis points. Officials continue to forecast economic growth and inflation to rise gradually from recent levels.

The statement accompanying today's decision again notes that a broad-based pick-up in the global economy is continuing, though officials warn that risks to the outlook for Chinese growth remain in place. Higher commodity prices are again cited as a factor providing a boost to Australia's national income. Looking at the domestic economy, officials repeated their assessment that the slowdown in growth recorded in the three months to March partly reflected "temporary factors". They argue that the transition to lower mining investment is "almost complete" and that investment is strengthening elsewhere in the economy. Although wage growth and consumption spending are subdued, the RBA continue to forecast growth to pick up, in part reflecting the support provided by low interest rates.

Today's statement contains very little discussion of the inflation outlook, merely repeating the RBA's view that inflation is expected to increase gradually as the economy strengthens. With virtually no change to the RBA's growth and inflation outlook, officials clearly saw no case for changing policy settings at today's meeting, again concluding that the economy is on track to record sustainable growth and, over time, to achieve the inflation target.

The next data release most likely to impact the RBA's assessment of the outlook is the inflation report for the three months to June, scheduled for release later this month. Should this indicate that recent inflation trends remain consistent with the RBA's forecasts, officials will likely continue to favour policy stability in the near-term.

Definition
The Reserve bank of Australia (RBA) announces its monetary policy with regard to interest rates on the first Tuesday of each month with the exception of January when it is on vacation. The RBA is the central bank of Australia and its duty is to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people. It does this by setting the cash rate to meet an agreed medium-term inflation target, working to maintain a strong financial system and efficient payments system.

Description
The Reserve Bank of Australia's (RBA's) main responsibility is monetary policy. Policy decisions are made by the Reserve Bank Board with the objective of achieving low and stable inflation over the medium term. Other responsibilities include maintaining financial system stability, while at the same time promoting the safety and efficiency of the payments system. The RBA regards appropriate monetary policy as a major factor contributing to the Australian dollar's stability, which in turn leads to full employment and the economic prosperity for Australia.

The RBA is unique among the central banks - it has two boards with complementary responsibilities. The Reserve Bank Board is responsible for monetary policy and overall financial system stability. The Payments System Board has specific responsibility for the safety and efficiency of the payments system.

The RBA sets an interest rate at which it lends to financial institutions. This interest rate then affects the whole range of interest rates set by commercial banks and other institutions for their own savers and borrowers. It also tends to affect the price of financial assets, such as bonds and shares, and the exchange rate, which affect consumer and business demand in a variety of ways. Lowering or raising interest rates affects spending in the economy.

The level of interest rates affects the economy. Higher interest rates tend to slow economic activity; lower interest rates stimulate economic activity. Either way, interest rates influence the sales environment. In the consumer sector, few homes or cars will be purchased when interest rates rise. Furthermore, interest rate costs are a significant factor for many businesses, particularly for companies with high debt loads or who have to finance high inventory levels. This interest cost has a direct impact on corporate profits. The bottom line is that higher interest rates are bearish for the financial markets, while lower interest rates are bullish.