AU: RBA Announcement


Mon Oct 02 22:30:00 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.

Similar to previous months, the statement accompanying today's decision again assesses that global economic conditions have improved but notes 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 and also point to "more consistent" signs that non-mining business investment is picking up. Recent strength in employment growth is also noted, but officials again caution that slow growth in real wages and high levels of household debt will likely constrain growth in household spending.

Officials expect the strength in the labour market eventually to translate into stronger wages growth but still only forecast a gradual increase in headline inflation from current low levels. They also have retained their assessment that the recent appreciation of the local currency are weighing on both growth and inflation and that further appreciation would result in a slower pick-up in economic activity and price pressures.

Despite these concerns about household debt and the exchange rate, today's statement suggests the RBA remains comfortable with the growth and inflation outlook, in line with recent public comments from officials, including Governor Philip Lowe. There continues to be little indication that officials see a strong case for rates to be lowered, but any move to raise rate also seems unlikely 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.