Economy

Australia's central bank holds fire as economy on the rebound

Australia's central bank holds fire as economy on the rebound”

The board of the Reserve Bank of Australia has elected to keep the cash rate on hold at 1.50 per cent at its September meeting.

Reserve Bank governor Philip Lowe has nearly chalked up his first year in the top job, and while he hasn't been forced to change the cash rate during that time, it doesn't mean life has been boring for the nation's top central banker.

Among them, the RBA noted an improvement in the non-mining investment outlook, a steady labour market and a cooling of the housing market in Sydney - which had previously been a source of concern for policy makers.

The Reserve Bank of Australia is expected to leave interest rates unchanged on Tuesday as it waits for the gradual easing of growth in the housing market to play out while hoping for economic growth to pick up.

If the Australian economy does start to pick up there could be optimism of interest rate hikes in the next year.

MyState investment manager Chris Schade said the current rate was "highly accommodative" and would allow the economy to continue to gain momentum over the next few years.

At its meeting today, the Board chose to leave the cash rate unchanged at 1.50 per cent.

Geopolitical risks continued weighing heavily on the markets as the latest news indicated that the U.S. president agreed to provide financial support of billions of dollars for new weapon sales to South Korea.

'The Australian dollar has appreciated over recent months, partly reflecting a lower USA dollar.

A string of disappointing data releases have triggered a Euro to Australian Dollar slide today, which has only been worsened by positive Australian economic news.

"However, wage and price inflation had not increased by as much as expected in other economies around the world that were already close to full employment, which raised the possibility that low inflation in Australia might also persist longer than forecast". The consensus is for a figure of 1.8%, which is low enough to not put any pressure on the bank to tighten financial conditions. The previous move was a rate cut in August 2016 (25 basis points).

"Residential construction activity remains at a high level, but little further growth is expected".

The hold decision will be welcome in markets outside of Sydney and Melbourne, he said, where regulatory and lending change imposed nationwide is generally seen as harmful amidst mild to negative growth conditions. Investors in residential property are facing higher interest rates.

Australia's net foreign debt position fell drastically from 1.01 trillion Australian dollars (804 billion USA dollars), to 990.6 billion Australian dollars (788.5 billion US dollars) for the quarter. "As a result, they'll be confident that they have the appropriate monetary policy in place for now".



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