Australia Maintains Record Low Interest Rate
- Author: Darren Santiago Aug 03, 2017,
Aug 03, 2017, 0:16
"The higher exchange rate is expected to contribute to subdued price pressures in the economy", Mr Lowe said.
The PMI data comes roughly 3 hours prior to the Reserve Bank of Australia's policy meeting.
"Our view remains that the RBA will be on hold for the next year at least, with risks around the consumer, a housing slowdown, inflation and the Australian dollar preventing hikes but a fading in the drag from the mining investment slump and solid employment growth heading off cuts". One source of uncertainty for the domestic economy is the outlook for consumption.
Indeed, at a recent speech at the Anika Foundation Luncheon in Sydney, RBA Governor Philip Lowe said that "the persistent slow growth in wages is creating a challenge for central banks".
"The Australian dollar has appreciated recently, partly reflecting a lower US dollar". The unemployment rate is expected to decline a little over the next couple of years. The various forward-looking indicators point to continued growth in employment over the period ahead.
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The Australian Dollar extended its gains from Monday following better than expected Chinese Manufacturing PMI data from Caixin.
Despite the bank's concern over recent strength in the Australian dollar, the broader economy has improved in recent months. But Dr Lowe noted that "a factor working in the other direction is increased competition from new entrants in the retail industry".
Higher commodity prices, weak United States dollar, and the lingering belief that RBA might turn hawkish with its policy, are what keeping the Aussie strong. "But, for now, policy still seems set to remain on hold", said Lloyds Commercial Banking's, chief economist, Rhys Herbert, who forecasts a 6-2 split in favour of keeping interest rates unchanged. Housing prices have been rising briskly in some markets, although there are some signs that these conditions are starting to ease. The weakness remains household debt - at a record 190% of income and among the world's highest - which is still outpacing income growth. Sydney and Melbourne house prices have added more than 10 percent over the past year, but low interest rates made an unpredictable frenzy among real-estate investors seeking to trade in tax breaks. Investors in residential property are facing higher interest rates.
The jump appeared to be largely driven by increased foreign demand for British goods as the weaker Pound makes good produced in the United Kingdom more attractive to overseas buyers. Taking account of the available information, the Board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.