Statement by Philip Lowe, Governor: Monetary Policy Decision - August 2017 | Media Releases | RBA
Central bank: rba | Type: statement | Date: 2017-08-01

Media Release
Statement by Philip Lowe, Governor:
Monetary Policy Decision
1 August 2017
At its meeting today, the Board decided to leave the cash rate unchanged at 1.50 per cent.
Conditions in the global economy are continuing to improve. Labour markets have
tightened further and above-trend growth is expected in a number of advanced economies,
although uncertainties remain. Growth in the Chinese economy has picked up a little and
is being supported by increased spending on infrastructure and property construction,
with the high level of debt continuing to present a medium-term risk. Commodity prices
have generally risen recently, although Australia's terms of trade are still expected to
decline over the period ahead.
Wage growth remains subdued in most countries, as does core inflation. Headline inflation
rates have declined recently, largely reflecting the earlier decline in oil prices. In
the United States, the Federal Reserve expects to increase interest rates further and
there is no longer an expectation of additional monetary easing in other major
economies. Financial markets have been functioning effectively and volatility remains
The Bank's forecasts for the Australian economy are largely unchanged. Over the next
couple of years, the central forecast is for the economy to grow at an annual rate of
around 3 per cent. The transition to lower levels of mining investment following the
mining investment boom is almost complete, with some large LNG projects now close to
completion. Business conditions have improved and capacity utilisation has increased.
Some pick-up in non-mining business investment is expected. The current high level of
residential construction is forecast to be maintained for some time, before gradually
easing. One source of uncertainty for the domestic economy is the outlook for
consumption. Retail sales have picked up recently, but slow growth in real wages and
high levels of household debt are likely to constrain growth in spending.
Employment growth has been stronger over recent months, and has increased in all states.
The various forward-looking indicators point to continued growth in employment over the
period ahead. The unemployment rate is expected to decline a little over the next couple
of years. Against this, however, wage growth remains low and this is likely to continue
for a while yet.
The recent inflation data were broadly as the Bank expected. Both CPI inflation and
measures of underlying inflation are running at a little under 2 per cent.
Inflation is expected to pick up gradually as the economy strengthens. Higher prices for electricity
and tobacco are expected to boost CPI inflation. A factor working in the other direction
is increased competition from new entrants in the retail industry.
The Australian dollar has appreciated recently, partly reflecting a lower US dollar. The
higher exchange rate is expected to contribute to subdued price pressures in the
economy. It is also weighing on the outlook for output and employment. An appreciating
exchange rate would be expected to result in a slower pick-up in economic activity and
inflation than currently forecast.
Conditions in the housing market vary considerably around the country. Housing prices
have been rising briskly in some markets, although there are some signs that these
conditions are starting to ease. In some other markets, prices are declining. In the
eastern capital cities, a considerable additional supply of apartments is scheduled to
come on stream over the next couple of years. Rent increases remain low in most cities.
Investors in residential property are facing higher interest rates. There has also been
some tightening of credit conditions following recent supervisory measures to address
the risks associated with high and rising levels of household indebtedness. Growth in
housing debt has been outpacing the slow growth in household incomes.
The low level of interest rates is continuing to support the Australian economy. 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.
Media and Communications
Secretary's Department
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Fax: +61 2 9551 8033