10 April 2017
The Reserve Bank has decided to keep the Official Cash Rate unchanged at 1.50% during its Board meeting on 4 April 2017. This was due to numerous reasons, including the continued growth of global economic conditions and higher commodity prices which have boosted Australia’s national income.
The market expectations suggest that there will be no change in the rate until an increase in mid-2018 by 0.25 points to 1.75 per cent. The US Federal Reserve is expected to lift its cash rate this month for the third time since 2015, providing "cover" that would allow the Reserve Bank to lift its rates without pushing up the Australian dollar.
The Australian economy is continuing its transition following the end of the mining investment boom, expanding by around 2 per cent in 2016. Due to this, non-mining business investment has risen over the past year, alongside Australian exports. “The depreciation of the exchange rate since 2013 has also assisted the economy in its transition following the mining investment boom. An appreciating exchange rate would complicate this adjustment.”
Labour market indicators continue to be mixed in light of the considerable variation in employment outcomes across the country. The unemployment rate has been steady at around 5 per cent over the past year, with employment growth concentrated in part-time jobs. The forward-looking indicators point to continued expansion in employment over the period ahead. Given that the low growth in labour costs has led to inflation levels being low, it is unlikely that underlying inflation will change in the near future.
The rate has also been kept steady due to the uncertainty of what another cut could do to the housing market, particularly amid concerns about extraordinarily fast home price growth in Sydney and Melbourne. The housing market has experienced a mixed bag of trends over the last three months. Growth in rent rates continues to be the slowest it has been for the last two decades, while Eastern capital cities can expect an increased amount of apartment construction over the next few years.
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