The Reserve Bank of Australia (RBA) has kept the official interest rate on hold at its historic low of 1.0 per cent followed by governor Philip Lowe’s statement on September 3rd 2019.
“Economic growth in Australia over the first half of this year has been lower than earlier expected, with household consumption weighed down by a protracted period of low income growth and declining housing prices and turnover,” he said in his official statement.
“The main domestic uncertainty continues to be the outlook for consumption, although a pick-up in growth in household disposable income and a stabilisation of the housing market are expected to support spending.”
This decision hasn’t come as much of a surprise as most economists had predicted the rate would remain at the same level for the month of September. This news comes off the back of the RBA cutting interest rates twice consecutively in June and July. Prior to this, the cash rate had sat at 1.50 per cent for the better part of three years.
The RBA had previously indicated that one of its key metrics was unemployment. Lowe has revealed that the RBA’s goal is to reduce unemployment to 4.5 per cent to finally produce wage growth. However, unemployment currently sits at 5.2 per cent; in spite of the economy producing many job vacancies last month, and this level is unlikely to change according to RBA forecasts.
“Wages growth remains subdued and there is little upward pressure at present, with strong labour demand being met by more supply,” Lowe said.
Weak retail sales figures from July, released while the RBA board met, pointed to the previous rate cuts doing little so far to fire up consumer spending. Retail sales fell 0.1 per cent in July, with discretionary sales down a particularly poor 0.3 per cent, against expectations of a modest rise over the month.
However, a full 25 basis point cut is expected by November 2019, with a second cut by April next year.
For the official RBA article, please visit the Reserve Bank’s website.