Originally published by AMP Capital
There were again no surprises from the RBA following its May Board meeting which left interest rates at a record low of 1.5% for the ninth month in a row.
The RBA’s post meeting Statement sounded a bit more upbeat on global growth, continues to see China’s high level of debt as a medium term risk, foreshadowed little change in its own economic forecasts to be released later this week in the quarterly Statement on Monetary Policy, sees the labour market as mixed, still sees an appreciating Austrailan dollar as complicating the adjustment in the economy and repeated its concerns about the housing market and, in particular, the growth of household debt relative to household income.
With the economy growing and headline inflation back within the RBA’s 2-3% target zone the pressure to cut rates again has reduced. But by the same token it’s too early for the RBA to think about raising rates given continuing low underlying inflation pressure, very high underemployment, record low wages growth and a still too high Australian dollar. Signs that Sydney and Melbourne property markets may be starting to cool – thanks to bank rate hikes, tightening lending conditions, all the talk about a property bubble and rising unit supply – add to the RBA’s flexibility on rates. Our indicative forecasts for property prices in Sydney, Melbourne and Perth are shown in the next chart.
Our base case remains that the RBA will be on hold out to the second half of 2018 when rates will start to rise.