Originally published by AMP Capital
There were no surprises from the RBA which left interest rates on hold for a record 18 meetings or 20 months (given it doesn’t meeting in Januarys), surpassing the previous record of 17 meetings or 19 months on hold which was set between January 1995 and July 1996.
On the one hand the global economy is strong, the RBA does not appear too fussed about recent share market volatility, the risk of a trade war and higher bank funding costs (albeit its keeping on eye on these issues), business conditions are strong and employment growth has been strong and the RBA continues to expect a pick up in growth and inflation. But against this this is uncertainty around the outlook for consumer spending, labour market spare capacity remains high, wages growth remains low (although it may have troughed), inflation remains low and measures by APRA to tighten lending standards have helped cool the Sydney and Melbourne property markets. So it makes sense to remain on hold.
Australia’s still high level of unemployment and underemployment compared to the US explains why the RBA is lagging the Fed in raising interest rates.
We don’t see the RBA commencing a tightening cycle until first half 2019 and an emerging further tightening in bank lending standards around home borrower income and expenses along with any flow through to higher mortgage rates from the recent increase in short term bank funding costs could delay this.