Statement by Philip Lowe, Governor: Monetary Policy Decision - July 2018 | Media Releases | RBA
Central bank: rba | Type: statement | Date: 2018-07-03

Media Release
Statement by Philip Lowe, Governor:
Monetary Policy Decision
3 July 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. A number of advanced economies are growing
at an above-trend rate and unemployment rates are low. The Chinese economy continues to
grow solidly, with the authorities paying increased attention to the risks in the
financial sector and the sustainability of growth. Globally, inflation remains low,
although it has increased in some economies and further increases are expected given the
tight labour markets. One uncertainty regarding the global outlook stems from the
direction of international trade policy in the United States. There have also been
strains in a few emerging market economies, largely for country-specific reasons.
Financial conditions remain expansionary, although they are gradually becoming less so
in some countries. There has been a broad-based appreciation of the US dollar. In
Australia, short-term wholesale interest rates have increased over recent months. This
is partly due to developments in the United States, but there are other factors at work
as well. It remains to be seen the extent to which these factors persist.
The recent data on the Australian economy continue to be consistent with the Bank's
central forecast for GDP growth to average a bit above 3 per cent in 2018 and
2019. GDP grew strongly in the March quarter, with the economy expanding by 3.1 per cent
over the year. Business conditions are positive and non-mining business investment is
continuing to increase. Higher levels of public infrastructure investment are also
supporting the economy. One continuing source of uncertainty is the outlook for
household consumption. Household income has been growing slowly and debt levels are
Higher commodity prices have provided a boost to national income recently. Australia's
terms of trade are, however, expected to decline over the next few years, but remain at
a relatively high level. The Australian dollar has depreciated a little, but remains
within the range that it has been in over the past two years.
The outlook for the labour market remains positive. Strong growth in employment has been
accompanied by a significant rise in labour force participation. The vacancy rate is
high and other forward-looking indicators continue to point to solid growth in
employment. A gradual decline in the unemployment rate is expected, after being steady
at around 5½ per cent for much of the past year. Wages growth remains low.
This is likely to continue for a while yet, although the stronger economy should see
some lift in wages growth over time. Consistent with this, the rate of wages growth
appears to have troughed and there are increasing reports of skills shortages in some
Inflation is low and is likely to remain so 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.
Nationwide measures of housing prices are little changed over the past six months.
Conditions in the Sydney and Melbourne housing markets have eased, with prices declining
in both markets. Housing credit growth has declined, with investor demand having slowed
noticeably. Lending standards are tighter than they were a few years ago, with APRA's
supervisory measures helping to contain the build-up of risk in household balance
sheets. Some further tightening of lending standards by banks is possible, although the
average mortgage interest rate on outstanding loans has been declining for some time.
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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