MNI REVIEW: RBA Ends Speculation, Leaves Rates On Hold

By Lachlan Colquhoun

     LONDON (MNI) - The Reserve Bank of Australia left official interest rates

at a record low 1.5%, defying intense speculation that subdued inflation and

growth rates would force a first move in more than two years.

     In a statement accompanying the rate decision, RBA Governor Philip Lowe

said that while they recognised "subdued inflationary pressures across much of

the economy", it judged that its current settings were still appropriate.

     Lowe noted there was still "spare economy" in the capacity, stating the RBA

would be watching developments in the labour market closely, to see if further

improvements flowed through to inflation.

     The central bank had been tipped by many to cut rates after first quarter

inflation data came in at a disappointing annualised 1.3%, a fall from 1.8% in

the previous quarter and well outside the RBA's target range of between 2 and

3%.

     "Looking forward, inflation is expected to pick up, but to do so only

gradually," Lowe said in today's statement, before going on to say he expected

recent increases in fuel prices to push inflation up to around 2% this year.

     --HOUSING MARKET

     The downturn in the housing market is having a deflationary impact on the

economy, as rents decline and consumers spend less on housing related items. The

Australian Bureau of Statistics released retail sales figures earlier Tuesday

which showed a 0.6% quarterly fall in prices across this sector.

     The RBA has said that its other main focus is the labour market, and

although unemployment ticked higher to 5.0% the Bank was heartened by the fact

that more full time jobs were created in March.

     Lowe's statement said they Bank is still looking for GDP growth of 2.75%

over both 2019 and 2020, supported by increased infrastructure investment and a

pick up in the mining sector. This is despite growth of only 0.2% in the last

quarter of 2018, a result which delivered an annualised growth rate of 2.3%,

down from 2.8% in Q3.

     Today's statement did not refer to the May 18 Federal Election, but the

RBA's Board may have been wary of cutting rates so close to polling day in what

has become a hard fought election, with economic management a major theme. 

     More on the election thinking could become clear when the minutes are

released on May 21, although the RBA may expand ahead of then, when the latest

quarterly Statement of Monetary Policy is released on Friday.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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