The Reserve Bank of Australia (RBA) has decided to keep its interest rates unchanged confirming economists’ expectation of the bank’s refusal to join other global central banks in giving way for higher rates.
During RBA’s 10th consecutive meeting on Tuesday, Governor Philip Lowe and his board reached an agreement to maintain cash rate at 1.5 percent as expected since the bank is focusing on subdued inflation, poor wage increase and high level of underemployment in the economy.
The board chose to keep the monetary policy unchanged as they believe it would be consistent with the economy’s sustainable growth and will eventually reach the inflation target.
The rate has been the same since the bank reduce rates by 25 basis points each in May and August last year.
Lowe also stated that market indicators remain mixed but employment rate has improved over the past months while wage growth is still low, it is likely to be like that for a while.
Even though unemployment has declined by 5.5 percent in May, Governor Lowe would want to avoid unreasonable increasing to the Australian dollar with any proposal the central bank is set to raise the interest rate.
It is for the reason that higher currency may lead to a more expensive Australian exports in the global market which could possibly weaken the country’s economic development.
CoreLogic’s research head Tim Lawless said that the decision was no surprise amid the slacking job and house market and inflation rate at 1.9 percent below RBA’s target of 2 to 3 percent.
He added that if earnings growth and inflation keeps holding back, people can expect interest rate to stay the same over a short period.
Lowe recognized the deceleration in economic growth but said that it was only showing short-term factors.
He stated that the Australian economy is expected to strengthen little by little with the move to lower levels of mining investment following the mining investment boom nearly done.
However, he added that consumption growth stays subdued indicating sluggish increase in real wages and high levels of household debt.
RBA has used simple policy to shield the economy from a plummeting mining investment and temporarily stopped since August to keep Sydney and Melbourne’s house prices from growing further given that it has doubled since 2009.
Nonetheless, with consumption and household debt only starting to ease at record levels, any rate increases is still far from happening.
The bank would likely continue to play the waiting game as it keeps an eye on the effects of tougher new measures for investors and interest-only borrowers by the Australian Prudential Regulation Authority (APRA).
Therefore, RBA may still require more time to observe the outcome of the financial regulator’s changes to lending conditions before deciding to increase rates.
Ahead of the policy meeting, financial markets had price in little or no possibility of an adjustment in interest rates until mid-2018.
RBA decision differs as the Bank of England, the Bank of Canada and the European Central Bank all have decided to tighten its monetary policy while the US Federal Reserve also remains hawkish after increasing rates last month.