Australia rates on hold ahead of growth data

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RBA Urged to Hold Interest Rates
 June 6th 2017
 
Justin Mc Gar




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The Reserve Bank of Australia (RBA) left the cash rate unchanged at 1.50 percent at its board meeting today as widely expected by the markets.

The RBA held the cash rate steady for a tenth consecutive month at 1.5 per cent at its June board meeting today, with governor Philip Lowe noting concerns about weak wages growth and mentioning a patchy housing market.

Housing "prices have been rising briskly in some markets, although there are some signs that these conditions are starting to ease", said Lowe, adding that lenders have increased their mortgage rates, particularly for investors and interest-only loans.

However, slow wages growth is likely to contain future household spending.

"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. "We think they will remain on hold until they see any signs of a pick up in the labour market".

The Australian dollar climbed after the RBA's announcement, rising to 74.86 U.S. cents by 1630 AEST, having earlier hit a low of 74.57 USA cents when weaker than expected exports data was released.

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The dollar held firm early on Tuesday after crawling away from an 18-day low against the yen thanks to a bounce in US yields, while the Australian dollar was steady ahead of a policy decision by the country's central bank later in the day. The central bank has ignored accumulating evidence of a likely softness in Q1 GDP data and judged steady policy is consistent with growth and inflation targets.

While the RBA was upbeat on global prospects, China continues to be the wildcard, said Dales.

"If anything, economic performance and risks still suggest there should be an easing bias and property markets/debt accumulation suggest a tightening one", Mr Joiner said. Record levels of underemployment - where workers are willing and able to work more hours - helps to explain that.

'They are going to overlook the slowdown in GDP as a temporary blip.

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.

Over the last month, financial markets have nudged higher bets on a rate cut by the end of the year to a probability of around 20%. The median forecast of a Reuters poll is that the economy has grown around 0.2 percent in the first quarter from the previous three months, but some analysts fear a small contraction.

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