Originally published by AMP Capital
As expected the Reserve Bank of Australia left the official cash rate on hold at 1.5% for the 13th month in a row.
The RBA continues to see improving global conditions, sees recent data as consistent with a gradual pick up in Australian growth, is a bit more confident on the outlook for non-mining investment, still expects a gradual rise in inflation and notes that stronger employment should eventually drive a lift in wages growth.
But against this it notes that wages growth remains low both globally and in Australia, it continues to note that this and high debt levels will constrain consumer spending, it remains concerned about the impact of the rising Australian dollar and it seems a bit more confident that the Sydney property market is cooling.
So overall, the RBA’s bias on interest rates for now remains pretty neutral. Reflecting this and the RBA’s continued mild attempt at jawboning against a further gain the Australian dollar is little changed from where it was before today’s RBA announcement.
Basically the RBA and rates are stuck between a rock and a hard place. Strong business confidence and jobs growth, the RBA’s expectations for a growth pick up and worries about reigniting the Sydney and Melbourne property markets 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 rise in the Australia dolldar argue against a rate hike. So we remain of the view that the RBA will leave rates on hold at 1.5% out to late next year at least. Speeches by RBA Governor Lowe on Tuesday and Friday will also be watched for any clues on the rate outlook.