Australia rates on hold ahead of growth data

Paterniano Del Favero
Giugno 7, 2017

"Nothing has happened since the last meeting that is likely to have materially altered the RBA's view of the outlook for inflation, economic growth or unemployment from that set out in the May statement on monetary policy, and hence nothing will have altered their view that current monetary policy settings are appropriate", said independent economist Saul Eslake.

Earlier on Tuesday, the Aussie had dropped a third of a United States cent after news Australia's current account deficit narrowed to A$3.1 billion in the first quarter.

Up to now, economists expected the RBA to hold or raise rates throughout the coming year but now markets are not ruling out further easing from the central bank, especially after the latest construction and wage growth data.

It means net exports - exports minus imports- will detract 0.7 percentage points from the gross domestic product (GDP) when the national accounts for the March quarter are released on Wednesday.

The Reserve Bank has held its benchmark interest rate at 1.5% while signalling that it believes east coast housing markets may be starting to ease.

A big unknown is household consumption which surprised with its strength late in 2016, but is being burdened by record-low wage growth and high levels of mortgage debt.

"Looking forward, economic growth is still expected to increase gradually over the next couple of years to a little above 3 per cent", he said.

The Reserve Bank of Australia (RBA) is about to deliver its June interest rate decision.

Wide variations in the housing market have also contributed to uncertainty in the economy.

Interest rates have been left unchanged since August past year as the RBA juggles fears around rising house prices and record household debt, with signs of weakness in the job market and a slowdown in consumer spending.

The broad-based pick-up in the global economy is continuing, Lowe said, with above-trend growth expected in a number of advanced economies.

At the core of the decision however was the uncertainty around the labor market. Sydney prices dropped 1.3% and Melbourne 1.7% last month, according to the latest CoreLogic survey, while auction clearance rates in both cities have also been softer in recent weeks. An appreciating exchange rate would complicate this adjustment, the bank noted.

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