Statement by Philip Lowe, Governor: Monetary Policy Decision - June 2018 | Media Releases | RBA
Central bank: rba | Type: statement | Date: 2018-06-05

Media Release
Statement by Philip Lowe, Governor:
Monetary Policy Decision
5 June 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number of central banks have withdrawn some monetary stimulus and further steps in this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.
Financial markets have been affected by political developments in the eurozone,
particularly in Italy. There are also concerns about the direction of international
trade policy in the United States and economic developments in a few emerging market
economies. Long-term bond yields in most major economies have declined recently and
there has been some widening of corporate credit spreads. Overall, though, financial
conditions remain expansionary. Conditions in US dollar short-term money markets have
eased recently, although they are tighter than earlier in the year, with US dollar
short-term interest rates having increased for reasons other than the increase in the
federal funds rate. The higher rates in the United States have flowed through to higher
short-term interest rates in a few other countries, including Australia.
The price of oil has increased over recent months, 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 recent data on the Australian economy have been consistent with the Bank's
central forecast for GDP growth to pick up, to average a bit above 3 per cent
in 2018 and 2019. 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. 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 been little changed at around 5½ per cent for
much of the past year. The various forward-looking indicators continue to point to solid
growth in employment in the period ahead, with a gradual reduction in the unemployment
rate expected. 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 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.
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.
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. Housing credit growth has slowed over the past year, especially to
investors. 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. While there may be some further tightening of
lending standards, the average mortgage interest rate on outstanding loans is continuing
to decline.
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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