The Reserve Bank of Australia has kept interest rates at record lows since August 2016 but tepid economic growth could see it lower them futher this year, analysts say (William WEST)
Sydney (AFP) – Australia’s central bank on Tuesday kept interest rates at a record low but said it would monitor developments as the economy stutters, with observers tipping a cut this year.
The economy grew just 0.2 percent in the last three months of 2018 to take the annual rate of expansion to 2.3 percent, below the Reverve Bank of Australia’s forecasts.
Inflation is sitting at 1.8 percent, which is also outside the central bank’s target range of 2.0-3.0 percent.
RBA governor Philip Lowe acknowledged weakness in both sets of economic data but said he was encouraged by the strength of the jobs market.
“The stronger labour market has led to some pick-up in wages growth, which is a welcome development,” he said in a statement after a monthly board meeting, which saw the bank keep rates at 1.5 percent, where they have been since August 2016.
“Continued improvement in the labour market is expected to see some further lift in wages growth over time, although this is still expected to be a gradual process.”
However slowing economic growth — with house prices tumbling, inflation and wages growth remaining soft and high household debt — has seen economists start to price in up to two quarter-point cuts this year.
JP Morgan economist Tom Kennedy said Lowe’s decision to add the phrase “continue to monitor developments” in the closely watched final (paragraph) of his statement suggested it was open to cuts.
“Given how the data has unfolded generally globally, that phrase would suggest that they are looking at developments, and… the read-through is that they have to lower rates if things sour from here,” Kennedy told AFP.
“The market is taking that as a sign that the RBA is laying the groundwork to ease or adjust policy.”
The decision came just hours before the government hands down its annual budget announcement, in which tax cuts are tipped to be doled out to voters ahead of an expected national election in May.
Commonwealth Bank of Australia chief Michael Blythe said fiscal policy, such as tax cuts, could help tackle the downside consumer risks.
The Australian dollar was down 0.5 percent at US$0.7080 in afternoon trade.
Disclaimer: Validity of the above story is for 7 Days from original date of publishing. Source: AFP.