AU: RBA Announcement

June 5, 2017 11:30 CDT

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

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 notes that a broad-based pick-up in global growth is continuing, with higher commodity prices providing a boost to Australia's national income. Looking at the domestic economy, officials now argue that a transition to lower levels of mining investment is "almost complete" with business investment picking up in other parts of the economy. Although the RBA expects GDP data scheduled for release later in the week will show slower growth in the three months to March, officials remain confident that growth will strengthen gradually over the next couple of years to above 3.0 percent.

Today's statement again describes labour market indicators as "mixed" with wage growth again characterised as "slow" and expected to stay that way "for a while yet". Inflation is still forecast to increase gradually over the forecast period. Officials also again referred to high levels of housing debt among households and welcomed recently announced supervisory measures aimed at addressing the risks associated with this debt. Perhaps indicating that these measures are having some impact, the statement notes that house prices have moderated in some parts of the country.

Based on this growth and inflation outlook, the RBA again concluded that no change in policy settings is required at present. This policy stability is likely to continue for at least the next few months, including at the RBA's next policy meeting scheduled for early July.

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.

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.