AU: RBA Announcement


Mon Feb 05 21:30:00 CST 2018

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 2016, when it was cut by 25 basis points.

The statement accompanying today's decision retains a positive assessment about global economic conditions and again notes that Australia's terms of trade are likely to decline but remain relatively strong in coming years. Officials also continue to forecast domestic growth to pick up to around 3.0 percent, arguing that data released since their last policy meeting in early December are consistent with this view. In particular, they remain confident about the outlook for business investment but cautious about the impact high levels of household debt may have on consumer spending.

Officials point to further improvement in labour market conditions and expect this to continue but also expect wages growth to remain subdued for some time. Reflecting this assessment, they forecast underlying inflation, currently below the target range of 2.0 percent to 3.0 percent, to remain low and to increase only gradually as the economy strengthens. This suggests that the policy stability seen over the last eighteen months looks set to 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.