RBA keeps interest rate on hold for April 2019

In line with its last few meetings for the year to date, the Reserve Bank of Australia (RBA) has kept interest rates on hold at 1.50%. This sees the RBA maintaining its period of policy stability that has been in place since August 2016.

The message in the final paragraph of the bank’s statement was much the same as what was communicated in March, indicating the bank is unlikely to change policy settings in the short term.

“Further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual.”

“Taking account of the available information, the Board judged that it was appropriate to hold the stance of policy unchanged at this meeting.”

However, the RBA added that “the Board will continue to monitor developments and set monetary policy to support sustainable growth in the economy and achieve the inflation target over time.”

The RBA is unlikely to cut the rate any further whilst job market conditions remain firm. Prior to today’s policy decision, some had speculated that the RBA may follow the lead from the Reserve Bank of New Zealand (RBNZ) by switching from a neutral to easing bias on the outlook for policy settings, signalling that it too may cut interest rates again. However this has not occurred on this occasion.

“There has been a significant increase in employment and the unemployment rate is at 4.9%,” the bank states.

“The vacancy rate remains high and there are reports of skills shortages in some areas.”

Additionally, the RBA stated that GDP rose by only 0.2% in the December quarter and that growth in household consumption was being affected by the reduction in disposable incomes and adjustments in the housing markets. Furthermore, the widespread droughts in many areas have adversely affected Australia’s farming output. It is likely that the bank will have to amend its next GDP forecast in light of this information.

The bank also indicated that the downturn in the housing market has spread beyond Sydney and Melbourne, and Perth and Darwin before them, noting the “adjustment in established housing markets is continuing, after the earlier large run-up in prices in some cities.” In the past, this statement had been reserved for Sydney and Melbourne only.

For the official RBA article, please visit the Reserve Bank’s website.

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