Statement by Philip Lowe, Governor: Monetary Policy Decision - December 2017 | Media Releases | RBA
Central bank: rba | Type: statement | Date: 2017-12-05

Media Release
Statement by Philip Lowe, Governor:
Monetary Policy Decision
5 December 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 2017. Labour markets have tightened
and further above-trend growth is expected in a number of advanced economies, although
uncertainties remain. Growth in the Chinese economy continues to be supported by
increased spending on infrastructure and property construction, although financial
conditions have tightened somewhat as the authorities address the medium-term risks from
high debt levels. Australia's terms of trade are expected to decline in the period
ahead but remain at relatively high levels.
Wage growth remains low in most countries, as does core inflation. In a number of
economies there has been some withdrawal of monetary stimulus, although financial
conditions remain quite expansionary. Equity markets have been strong, credit spreads
have narrowed over the course of the year and volatility in financial markets is low.
Long-term bond yields remain low, notwithstanding the improvement in the global economy.
Recent data suggest that the Australian economy grew at around its trend rate over the
year to the September quarter. The central forecast is for GDP growth to average around
3 per cent over the next few years. Business conditions are positive and
capacity utilisation has increased. The outlook for non-mining business investment has
improved further, with the forward-looking indicators being more positive than they have
been for some time. Increased public infrastructure investment is also supporting the
economy. One continuing source of uncertainty is the outlook for household consumption.
Household incomes are growing slowly and debt levels are high.
Employment growth has been strong over 2017 and the unemployment rate has declined.
Employment has been rising in all states and has been accompanied by a rise in labour
force participation. The various forward-looking indicators continue to point to solid
growth in employment over the period ahead. There are reports that some employers are
finding it more difficult to hire workers with the necessary skills. However, wage
growth remains low. This is likely to continue for a while yet, although the stronger
conditions in the labour market should see some lift in wage growth over time.
Inflation remains low, with both CPI and underlying inflation running a little below 2 per cent.
The Bank's central forecast remains for inflation to pick up gradually as the
economy strengthens.
The Australian dollar 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.
Growth in housing debt has been outpacing the slow growth in household income for some
time. To address the medium-term risks associated with high and rising household
indebtedness, APRA has introduced a number of supervisory measures. Credit standards
have been tightened in a way that has reduced the risk profile of borrowers. Nationwide
measures of housing prices are little changed over the past six months, with conditions
having eased in Sydney. 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.
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.
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