Statement by Philip Lowe, Governor: Monetary Policy Decision - May 2018 | Media Releases | RBA
Central bank: rba | Type: statement | Date: 2018-05-01

Media Release
Statement by Philip Lowe, Governor:
Monetary Policy Decision
1 May 2018
At its meeting today, the Board decided to leave the cash rate unchanged at 1.50 per cent.
The global economy has strengthened over the past year. 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. As conditions have improved in the global economy, a
number of central banks have withdrawn some monetary stimulus and further steps in this
direction are expected.
Long-term bond yields have risen over the past six months, but are still low. Equity
market volatility has increased from the very low levels of last year, partly because of
concerns about the direction of international trade policy in the United States. Credit
spreads have also widened a little, but remain low. Financial conditions generally
remain expansionary. Conditions in US dollar short-term money markets have, however,
tightened over the past few months, with US dollar short-term interest rates having
increased for reasons other than the increase in the federal funds rate. This has flowed
through to higher short-term interest rates in a few other countries, including
Australia.
The price of oil has increased recently, as have the prices of some base metals.
Australia's terms of trade are expected to decline over the next few years, but
remain at a relatively high level.
The Bank's central forecast for the Australian economy remains for growth to pick
up, to average a bit above 3 per cent in 2018 and 2019. This should see some
reduction in spare capacity in the economy. Business conditions are positive and
non-mining business investment is increasing. Higher levels of public infrastructure
investment are also supporting the economy. Stronger growth in exports is expected. One
continuing source of uncertainty is the outlook for household consumption, although
consumption growth picked up in late 2017. Household income has been growing slowly and
debt levels are high.
Employment has grown strongly over the past year, although growth has slowed over recent
months. The strong growth in employment has been accompanied by a significant rise in
labour force participation, particularly by women and older Australians. The
unemployment rate has declined over the past year, but has been steady at around 5½ per cent
for some months. The various forward-looking indicators continue to point to solid
growth in employment in the period ahead, with a further gradual reduction in the
unemployment rate expected. Notwithstanding the improving labour market, 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 reports that some employers are finding it
more difficult to hire workers with the necessary skills.
Inflation remains low. The recent inflation data were in line with the Bank's
expectations, with both CPI and underlying inflation running marginally below 2 per cent.
Inflation is likely to remain low 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.
The Australian dollar has depreciated a little recently, but on a trade-weighted basis
remains within the range that it has been in over the past two years. An appreciating
exchange rate would be expected to result in a slower pick-up in economic activity and
inflation than currently forecast.
The housing markets in Sydney and Melbourne have slowed. Nationwide measures of housing
prices are little changed over the past six months, with prices having recorded falls in
some areas. In the eastern capital cities, a considerable additional supply of
apartments is scheduled to come on stream over the next couple of years. APRA's
supervisory measures and tighter credit standards have been helpful in containing the
build-up of risk in household balance sheets, although the level of household debt
remains high.
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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