Originally published by AMP Capital
Again, no surprises from the Reserve Bank of Australia (RBA) which left the official cash rate on hold at 1.5% for the 14th month in a row following its October board meeting.
The RBA’s post meeting statement continues to imply a neutral short term bias on interest rates.
The RBA continues to see improving global conditions, sees recent data as consistent with a gradual pick up in Australian growth, is more confident on the outlook for investment , still expects a gradual rise in inflation and notes that stronger employment should eventually drive some lift in wages growth.
But against this it continues to note that wages growth remains low, it sees this and high debt levels constraining consumer spending, it remains concerned about the impact of the strong Australian dollarr and it seems a bit more confident that the Sydney property market is cooling.
So the RBA’s bias on interest rates for now remains neutral. Reflecting this, the Australian dollar is down but only marginally from where it was before today’s RBA announcement.
Basically the RBA and official interest rates remain stuck between a rock and a hard place. Improving global growth, strong business confidence and jobs growth, the RBA’s own expectations for a growth pick up and already high levels of household debt argue against a rate cut. But record low wages growth, low underlying inflation, the impending slowdown in housing construction, risks around the consumer and the strong Australian dollar argue against a rate hike. The next move in rates is likely to be up, but for now the downside risks are still significant and as such we remain of the view that it’s way too early to start raising rates just yet.