AU: RBA Announcement


Mon Sep 04 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.

The statement accompanying today's decision repeats last month's assessment that global economic conditions are on the improve, despite medium-term risks to the Chinese growth outlook. Officials consider recent data to have been consistent with their forecast that domestic growth will gradually pick up over the coming year, with a decline in mining investment expected to "soon run its course" and investment elsewhere in the economy strengthening. Residential construction is expected to remain strong but not grow significantly from current levels. Officials highlight recent employment gains but also note that wage growth remains low and is set to stay this way, with this factor and high household debt expected to restrain consumer spending.

The inflation outlook is unchanged, with only a gradual increase from current low levels expected. Officials also have retained their assessment that the recent appreciation of the local currency will help keep price pressures subdued and represents a downside risk for output and employment growth. Any further appreciation, they argue, would likely result in downward revisions to growth and inflation forecasts.

Today's statement suggest there has been little change in the RBA's policy views. Although recent currency appreciation suggests that lower policy rates would be helpful to support domestic activity, officials seem confident that recent data are in line with their growth forecasts. Concerns about already high levels of household debt are also likely to weigh against any rate cuts, suggesting that recent policy stability is likely to continue 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.