As expected, the RBA Board left the official cash rate on hold at 1.50% after its August policy meeting. According to the RBA, global growth rates continue to improve and the Australian economy is expected to do so as well. Local unemployment is expected to decline but wage growth will not accelerate for some time and inflation is expected to “pick up gradually”.
Westpac’s chief economist Bill Evans summed things up. “The Governor’s statement indicates that the Bank is feeling a little more comfortable with the outlook. Growth prospects have improved and the heat seems to be coming out of the housing market.” However, he disagreed with the consensus position the market is taking with respect to future cash rates. “Under these circumstances we do not support current market pricing which points to the beginning of the rate hike cycle in mid-2018. We continue to expect rates to remain on hold in 2018.”
ANZ senior economist Felicity Emmett generally agreed, but she seemed to hint of a disagreement with Evans’ cash rate forecast for 2018. “The labour and housing markets will continue to be the key inputs into the RBA’s monetary policy deliberations, and stronger outcomes in these markets will increase the odds of an earlier than expected move from the RBA.”
So, all in all, the RBA decision created very few ripples and there was little in the accompanying statement of major interest.
What was interesting was part of a Brisbane speech by Philip Lowe a few hours later. The speech covered a range of topics, from the rationale behind leaving the cash rate at 1.50%, to the likely increase of inflation and various other economic topics. The interesting part was a continuation of the RBA’s theme of downplaying its discussion of the neutral interest rate at its July meeting.