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MNI POLICY: RBA Cash Rate Unchanged, Statement More Positive

MNI (London)
By Sophia Rodrigues
     SYDNEY (MNI) - The Reserve Bank of Australia left the cash rate unchanged
at 1.5% Tuesday, the 24th meeting in a row the rate was left on hold, an outcome
that was widely expected by both financial markets and economists. 
     Following are the five key observations we made from the RBA's cash rate
     --The overall statement struck a more positive tone, with more optimistic
comments on growth, the labor market and global inflation and was in line with
MNI's State of Play published Monday. They suggest the market has been
under-pricing the risk that the RBA could hike the cash rate before the end of
     --The RBA said that while global inflation remains low, it has increased
due to both higher oil prices and some lift in wages growth. Most importantly
for RBA monetary policy are the additional comments on inflation, saying a
further pick-up is expected given the tight domestic labor markets, and in the
U.S. due to the sizeable fiscal stimulus.
     --The RBA said the economy grew strongly over the past year, increasing by
3.4%. It reiterated the central forecast for growth to average a bit above 3% in
2018 and 2019. Other comments on growth were unchanged and pointed to continued
optimism about the economy.
     --There was a small but significant change in the commentary on the labor
market. The RBA said the "unemployment rate is trending lower and, at 5.3%, is
the lowest in almost six years." Given there were no updates to key forecasts
for the economy, the RBA retained its outlook that further gradual decline in
the jobless rate is expected over the next couple of years to around 5% but this
masked optimism that the 5% level might be achieved much earlier.
     --The RBA didn't appear fazed about the recent hikes in mortgage rates by
three of the four big lenders, and other smaller banks. It pointed to this but
also noted they had reduced mortgage rates for some new loans. The RBA also
reiterated that mortgage rates remain low and there is strong competition for
borrowers of high credit quality.
     --The RBA once again acknowledged the recent depreciation in the Australian
dollar versus the U.S. dollar, noting most other currencies also fell against
the U.S. dollar. 
     --The commentary on the housing market was unchanged, but the RBA noted
that mortgages extended to owner-occupiers remain robust while investor
mortgages have slowed noticeably.
--MNI Sydney Bureau; tel: +61 2-9716-5467; email:
[TOPICS: MMLRB$,M$A$$$,M$L$$$,MT$$$$]
MNI London Bureau | +44 203-865-3812 |

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