As expected no move on rates yesterday by the Reserve Bank board for a record 20 months in a row.
The AMP’s Chief Economist, Dr Shane Oliver says there were no surprises in the post meeting statement from Governor Phil Lowe:
The central bank kept its cash rate on hold at a record low of 1.5% for yet another month, and there’s no sign of any change happening for quite a while.
“The bank’s central forecast remains for faster growth in 2018,” Dr Lowe said in his post meeting statement (http://www.rba.gov.au/media-releases/2018/mr-18-07.html).
"We don’t see the RBA commencing a tightening cycle until first half 2019 and an emerging further tightening in bank lending standards around home borrower income and expenses along with any flow through to higher mortgage rates from the recent increase in short term bank funding costs could delay this,” Dr Oliver wrote yesterday
Dr Lowe’s statement ended with the now familiar comments:
"The low level of interest rates is continuing to support the Australian economy. 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 holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time, Dr Lowe said.
"Inflation remains low, with both CPI and underlying inflation running a little below 2 per cent. Inflation is likely to remain low for some time, reflecting low growth in labour costs and strong competition in retailing. A gradual pick-up in inflation is, however, expected as the economy strengthens. The central forecast is for CPI inflation to be a bit above 2 per cent in 2018.”
"One continuing source of uncertainty is the outlook for household consumption, although consumption growth picked up in late 2017. Household income has been growing slowly and debt levels are high.
The RBA made several changes to its assessment on current financial market conditions, along with the risks posed by a possible trade war between the United States and China – a development that has already hit share prices.
“Equity market volatility has increased from the very low levels of last year, partly because of concerns about the direction of international trade policy in the United States,” the RBA said.
The bank also noted that short-term US dollar borrowing costs have also increased, adding that this was spilling over to funding in other markets, including Australia (because of rising US rates and fears about the strength of US financial markets).
“There has been some tightening of conditions in US dollar short-term money markets, with US dollar short-term interest rates increasing for reasons other than the increase in the federal funds rate,” it said.
“This has flowed through to higher short-term interest rates in a few other countries, including Australia.” (Bank borrowings from offshore are costing more at the moment than earlier in the year).
Should funding pressures persist, this will further reduce the odds of a rate increase from the bank in the year ahead, especially if higher borrowing costs are passed on to Australian households and businesses in the shape of higher housing and business rates.
The latest ANZ jobs ads survey for March, released yesterday shows that the number of job ads last month were flat compared with the small dip in February.
The survey showed 177,084 positions were advertised in March, an increase of 11.5% compared to a year ago. In trend terms, job ads rose 0.8% on a month for month basis, edging down from a 0.9% in February, while the annual trend rate slowed from 12.2% in February to 11.8% last month.
ANZ head of Australian economics David Plank said despite advertisements easing slightly over the past two months, January’s strong result – where ads grew 6.3% for the month – had helped lift jobs ads up 4.4% for the first quarter.
He said the level of job advertisements is consistent with continued strength in employment growth, however, he expects some slowdown in the pace at which jobs are added, as does Dr Oliver from the AMP. And CoreLogic data for March showed a further fall in capital city dwelling prices for the 5th month in a row. The drop of 0.2% month on month (mom) cut the annual growth rate to just 0.8% year on year from a peak of 11.4% in May last year.
The fall continues to be led by Sydney where prices fell another 0.3% and are now down 3.9% from their August high, and to a less extent in Melbourne where prices fell 0.2% mom and are down 0.7% from their November high.
Prices also fell in Adelaide by 0.3% mom, but rose in other capitals with Hobart continuing to boom with prices up 1.7% mom and 13% from a year ago.
