Originally published by AMP Capital
The August RBA Board meeting saw it leave interest rates on hold at 1.5%, for a record 2 years or 22 meetings in a row. And it could still be another 2 years before rates are moved.
The RBA’s Statement accompanying the decision provided no surprises. It made no major changes to its underlying growth outlook where its sees growth picking up a bit above 3%. However, it continues to see the consumer spending outlook as uncertain, the Statement now includes a reference to the drought, it notes that China has slowed a little and that uncertainty remains around US trade policy.
While the RBA does not appear to be too fussed about falling home prices it would have to be feeling a little bit nervous about it given the build up in household debt in recent years and it would be aware that when house prices and auction clearances have been this week in the past it has actually started cutting interest rates.
On inflation, the RBA still sees a rise in in 2019 and 2020, but has flagged a downwards revision to its headline inflation forecast for this year to 1.75% year on year, which will take it back below the low end of the 2-3% target and compares to its May forecast of 2.25%.
Once again, there is nothing in the RBA’s latest Statement to suggest an imminent change in monetary policy.
The RBA’s own forecasts for decent growth and a gradual rise in inflation along with strong infrastructure investment, rising business investment and strong export volumes argue against a rate cut but the peak in the housing construction cycle, uncertainty about the outlook for consumer spending, the weakening Sydney and Melbourne property markets, the worsening drought, low inflation and wages growth and tight bank lending standards all argue against a rate hike. So the stand-off continues and the RBA will remain on hold for a while to come. The next move is probably still up but not until second half 2020 at the earliest and there is a rising risk that the next move will actually be down.
So despite relatively minor periodic moves in bank mortgage rates (with funding cost pressure pointing to a small rise at present) and deposit rates, the broad outlook remains for bank interest rates to remain low for an extended period.
