Free Trial

REPEAT:MNI POLICY: RBA Waits On Inflation To Trigger Rate Hike

MNI (London)
Repeats Story Initially Transmitted at 03:43 GMT Nov 9/22:43 EST Nov 8
--RBA Warns If Inflation, Jobs Develop As Forecast, Rates Will Rise
--Global Growth Outlook Positive, But Protectionism A Risk
By Lachlan Colquhoun
     SYDNEY (MNI) - The Reserve Bank of Australia has re-affirmed it sees no
need for a near-term rate hike, although it signalled increasing employment
could fuel domestic inflation down the line, prompting a change in its stance.
     The RBA's latest Quarterly Statement on Monetary Policy, published Friday,
states that the Board "does not see a strong case in the near term" to adjust
official interest rates, which have been at a record low 1.5% since August 2016.
     However, they underlined that if the economy develops as expected, rates
will likely rise at a future point.
     "The Board is expecting further progress in reducing unemployment and
ensuring inflation is consistent with the target," the statement said.
     "If that progress is made, higher interest rates are likely to be
appropriate at some point."
     --GRADUAL MOVES
     Any move, the statement says, is likely to be gradual. Inflation is
currently running at 1.9%, below the Bank's preferred range of 2 to 3%, and the
unemployment rate is also declining, now at 5.0%.
     The low inflation figure, however, was impacted by changes in child care
funding and the Bank expects 2019 data to move higher, consistent with upgraded
forecasts for GDP growth, at an average 3.5% over 2019, and for the labour
market.
     The Bank says it is paying "close attention" to trends in domestic wage
growth and household spending as the main drivers for changing its stance on
interest rates.
     "A gradual pick-up in wages growth is expected as the economy continues to
improve and is likely to be necessary for inflation to be sustainably within the
target range," the statement says.
     "There remains considerable uncertainty about how soon and how quickly this
might occur."
     Although household spending was been growing steadily for some time and is
expected to continue to do so, the RBA Board is aware of the slow growth in
household incomes and the impact that is having on spending in an environment of
high debt and falling house prices.
     The current "stimulatory interest rate setting" had supported the economy
and had resulted in progress towards full employment, a milestone which could be
reached next year.
     --OFFSHORE RISKS
     Although positive on the global economic outlook, the RBA has warned of the
impacts of a trade war between the U.S. and China, which was already "weighing
on export orders for some economies."
     "The possibility of trade protectionism escalating further presents a
significant downside risk to global growth, especially if tensions spread to
involve other economies or if business investment decisions are affected," the
RBA statement said.
     Growth in China had slowed over the past year, particularly in the
industrial sector, but some of this was due to "targeted" Government policies to
contain risk.
     Growth was also expected to be slow for Australia's other major trading
partners, the QMPS said.
     Regional growth, although strong in 2018, could also be negatively impacted
by trade tensions because of the position of Asian economies in global supply
chains.
     --TRADE TERMS
     Prices of energy, in particularly for liquefied natural gas (LNG) and
thermal coal, had been major factors in Australia's terms of trade continuing
"to exceed earlier expectations."
     While this could be expected to continue for the next few quarters,
Australia's terms of trade were expected to decline, "as commodity prices
moderate and global prices of imported goods pick up along with global
inflation."
     "However, this adjustment is now expected to take a bit longer than
previously thought," the RBA statement said.
MNI London Bureau | +44 203-865-3812 | les.commons@marketnews.com
MNI London Bureau | +44 203-865-3812 | les.commons@marketnews.com

To read the full story

Close

Why MNI

MNI is the leading provider

of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.

Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
}); window.REBELMOUSE_ACTIVE_TASKS_QUEUE.push(function(){ window.dataLayer.push({ 'event' : 'logedout', 'loggedOut' : 'loggedOut' }); });