AU: RBA Announcement


Mon Nov 06 21:30:00 CST 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 again points to improving global conditions but warns of medium-term risks to the Chinese growth outlook. Turning to the domestic outlook, officials' forecasts are little changed, with economic growth expected to pick up from current levels and to average around 3 percent over the next few years. Ongoing improvements in the labour market are expected to push up wage growth eventually though officials remain concerned that high household debt will restrain consumer spending.

The statement also notes that underlying inflation is likely to remain low "for some time", despite recent increases in tobacco and electricity prices. The RBA continues to forecast inflation will pick up only gradually, and again warns that recent appreciation in the domestic currency could further dampen price pressures. Recent changes to the weights used to calculate the consumer price index could result in some adjustments to the RBA's new inflation forecasts, which will be published later in the week in the quarterly statement on monetary policy.

Although underlying inflation is expected to remain below the RBA's target range of 2.0 percent to 3.0 percent in the near-term, officials appear relatively confident that economic growth is set to strengthen. This suggests that there is little urgency among officials to adjust policy rates in either direction and that the policy stability seen over the last year will extend for at least a few more months.

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.