Statement by Philip Lowe, Governor: Monetary Policy Decision - December 2018 | Media Releases | RBA
Central bank: rba | Type: statement | Date: 2018-12-04

Media Release
Statement by Philip Lowe, Governor:
Monetary Policy Decision
4 December 2018
At its meeting today, the Board decided to leave the cash rate unchanged at 1.50 per cent.
The global economic expansion is continuing and unemployment rates in most advanced
economies are low. There are, however, some signs of a slowdown in global trade, partly
stemming from ongoing trade tensions. Growth in China has slowed a little, with the
authorities easing policy while continuing to pay close attention to the risks in the
financial sector. Globally, inflation remains low, although it has increased due to the
earlier lift in oil prices and faster wages growth. A further pick-up in core inflation
is expected given the tight labour markets and, in the United States, the sizeable
fiscal stimulus.
Financial conditions in the advanced economies remain expansionary but have tightened
somewhat. Equity prices have declined and credit spreads have moved a little higher.
There has also been a broad-based appreciation of the US dollar this year. In Australia,
money-market interest rates have declined, after increasing earlier in the year.
Standard variable mortgage rates are a little higher than a few months ago and the rates
charged to new borrowers for housing are generally lower than for outstanding loans.
The Australian economy is performing well. The central scenario is for GDP growth to
average around 3½ per cent over this year and next, before slowing in
2020 due to slower growth in exports of resources. Business conditions are positive and
non-mining business investment is expected to increase. Higher levels of public
infrastructure investment are also supporting the economy, as is growth in resource
exports. One continuing source of uncertainty is the outlook for household consumption.
Growth in household income remains low, debt levels are high and some asset prices have
declined. The drought has led to difficult conditions in parts of the farm sector.
Australia's terms of trade have increased over the past couple of years and have
been stronger than earlier expected. This has helped boost national income. Most
commodity prices have, however, declined recently, with oil prices falling
significantly. The Australian dollar remains within the range that it has been in over
the past two years on a trade-weighted basis.
The outlook for the labour market remains positive. The unemployment rate is 5 per cent,
the lowest in six years. With the economy expected to continue to grow above trend, a
further reduction in the unemployment rate is likely. The vacancy rate is high and there
are reports of skills shortages in some areas. The stronger labour market has led to
some pick-up in wages growth, which is a welcome development. The improvement in the
economy should see some further lift in wages growth over time, although this is still
expected to be a gradual process.
Inflation remains low and stable. Over the past year, CPI inflation was 1.9 per cent
and in underlying terms inflation was 1¾ per cent. Inflation is
expected to pick up over the next couple of years, with the pick-up likely to be
gradual. The central scenario is for inflation to be 2¼ per cent in
2019 and a bit higher in the following year.
Conditions in the Sydney and Melbourne housing markets have continued to ease and
nationwide measures of rent inflation remain low. Credit conditions for some borrowers
are tighter than they have been for some time, with some lenders having a reduced
appetite to lend. The demand for credit by investors in the housing market has slowed
noticeably as the dynamics of the housing market have changed. Growth in credit extended
to owner-occupiers has eased to an annualised pace of 5–6 per cent.
Mortgage rates remain low, with competition strongest for borrowers of high credit
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.
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