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Cash Rate August 2017

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As expected, the Reserve Bank of Australia (RBA) has again left the official cash rate on hold at 1.5 per cent, marking one year since the last move. This decision comes ahead of the release of the bank’s Quarterly Statement on Monetary Policy (SoMP) this Friday.

The rates have not moved since 3 August 2016 when rates were cut significantly and today’s announcement has researchers and economists alike noting that any rate movements in the immediate future are deemed as unlikely. Tim Lawless, head of research at CoreLogic, has said that not only have any chances of a rate cut diminished, but any suggestion of rate increase may be some way off as well with financial markets indicating the cash rate won’t rise until late 2018.

RBA governor Philip Lowe said that the recent increase in the Australian dollar poses a threat in that it is hurting job creation and economic activity. However, despite this warning the bank’s forecasts remain largely unchanged suggesting there will be no major surprises to markets with the SoMP.

Though the bank did provide largely optimistic commentary on current economic conditions, it did continue to express uncertainty about the outlook for household consumption which is the largest part of the Australian economy at just under 60%. Retail sales have increased however, a slow growth in real wages and high level of household debt are likely a cause for constraint in the growth of spending.

Given the importance placed on the outlook for household spending, the bank’s comments suggest that upcoming labour market data will remain an important consideration in the outlook for interest rate settings moving forward.

Further clarification of the RBA’s outlook is expected with the SoMP release on Friday.

If you have any questions about how this may affect you, please get in touch today.

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