Statement by Philip Lowe, Governor: Monetary Policy Decision - March 2018 | Media Releases | RBA
Central bank: rba | Type: statement | Date: 2018-03-06

Media Release
Statement by Philip Lowe, Governor:
Monetary Policy Decision
6 March 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. Growth picked up in
the Asian economies in 2017, partly supported by increased international trade. 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.
The pick-up in the global economy has contributed to a rise in oil and other commodity
prices over the past year. Even so, Australia's terms of trade are expected to decline
over the next few years, but remain at a relatively high level.
Globally, inflation remains low, although higher commodity prices and tight labour
markets are likely to see inflation increase over the next couple of years. Long-term
bond yields have risen but are still low. Market volatility has increased from the very
low levels of last year. As conditions have improved in the global economy, a number of
central banks have withdrawn some monetary stimulus. Financial conditions remain
expansionary, with credit spreads narrow.
The Bank's central forecast is for the Australian economy to grow faster in 2018 than it
did in 2017. Business conditions are positive and non-mining business investment is
increasing. Higher levels of public infrastructure investment are also supporting the
economy. Further growth in exports is expected after temporary weakness at the end of
2017. One continuing source of uncertainty is the outlook for household consumption.
Household incomes are growing slowly and debt levels are high.
Employment grew strongly over the past year and the unemployment rate declined.
Employment has been rising in all states and has been accompanied by a significant rise
in labour force participation. The various forward-looking indicators continue to point
to solid growth in employment over the period ahead, with a further gradual reduction in
the unemployment rate expected. Notwithstanding the improving labour market, wage growth
remains low. This is likely to continue for a while yet, although the stronger economy
should see some lift in wage growth over time. Consistent with this, the rate of wage
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, with both CPI and underlying inflation running a little 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.
On a trade-weighted basis, 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. 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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