Statement by Philip Lowe, Governor: Monetary Policy Decision - February 2017 | Media Releases | RBA
Central bank: rba | Type: statement | Date: 2017-02-07

Media Release
Statement by Philip Lowe, Governor:
Monetary Policy Decision
7 February 2017
At its meeting today, the Board decided to leave the cash rate unchanged at 1.50 per cent.
Conditions in the global economy have improved over recent months. Business and consumer
confidence have both picked up. Above-trend growth is expected in a number of advanced
economies, although uncertainties remain. In China, growth was stronger over the second
half of 2016, supported by higher spending on infrastructure and property construction.
This composition of growth and the rapid increase in borrowing mean that the medium-term
risks to Chinese growth remain. The improvement in the global economy has contributed to
higher commodity prices, which are providing a boost to Australia's national income.
Headline inflation rates have moved higher in most countries, partly reflecting the
higher commodity prices. Long-term bond yields have also moved higher, although in a
historical context they remain low. Interest rates have increased in the United States
and there is no longer an expectation of further monetary easing in other major
economies. Financial markets have been functioning effectively and stock markets have
mostly risen.
In Australia, the economy is continuing its transition following the end of the mining
investment boom. GDP was weaker than expected in the September quarter, largely
reflecting temporary factors. A return to reasonable growth is expected in the December
The Bank's central scenario remains for economic growth to be around 3 per cent over the
next couple of years. Growth will be boosted by further increases in resource exports
and by the period of declining mining investment coming to an end. Consumption growth is
expected to pick up from recent outcomes, but to remain moderate. Some further pick-up
in non-mining business investment is also expected.
The outlook continues to be supported by the low level of interest rates. Financial
institutions remain in a position to lend. The depreciation of the exchange rate since
2013 has also assisted the economy in its transition following the mining investment
boom. An appreciating exchange rate would complicate this adjustment.
Labour market indicators continue to be mixed and there is considerable variation in
employment outcomes across the country. The unemployment rate has moved a little higher
recently, but growth in full-time employment turned positive late in 2016. The
forward-looking indicators point to continued expansion in employment over the period
Inflation remains quite low. The December quarter outcome was as expected, with both
headline and underlying inflation of around 1½ per cent. The Bank's inflation forecasts
are largely unchanged. The continuing subdued growth in labour costs means that
inflation is expected to remain low for some time. Headline inflation is expected to
pick up over the course of 2017 to be above 2 per cent, with the rise in underlying
inflation expected to be a bit more gradual.
Conditions in the housing market vary considerably around the country. In some markets,
conditions have strengthened further and prices are rising briskly. In 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. Growth in rents
is the slowest for a couple of decades. Borrowing for housing has picked up a little,
with stronger demand by investors. With leverage increasing, supervisory measures have
strengthened lending standards and some lenders are taking a more cautious attitude to
lending in certain segments.
Taking account of the available information, and having eased monetary policy in 2016,
the Board judged that holding the stance of 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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