Statement by Philip Lowe, Governor: Monetary Policy Decision - October 2017 | Media Releases | RBA
Central bank: rba | Type: statement | Date: 2017-10-03

Media Release
Statement by Philip Lowe, Governor:
Monetary Policy Decision
3 October 2017
At its meeting today, the Board decided to leave the cash rate unchanged at 1.50 per
Conditions in the global economy have improved. Labour markets have tightened and
above-trend growth is expected in a number of advanced economies, although uncertainties
remain. Growth in the Chinese economy is being supported by increased spending on
infrastructure and property construction, with the high level of debt continuing to
present a medium-term risk. 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. Headline inflation
rates are generally lower than at the start of the year, largely reflecting the earlier
decline in oil prices. In the United States, the Federal Reserve has indicated that it
will begin the process of balance sheet normalisation in October and that it expects to
increase interest rates further. In the other major economies, there is no longer an
expectation of additional monetary easing. Financial markets have been functioning
effectively and volatility remains low.
The Australian economy expanded by 0.8 per cent in the June quarter. This outcome and
other recent data are consistent with the Bank's expectation that growth in the
Australian economy will gradually pick up over the coming year.
Over recent months there have been more consistent signs that non-mining business
investment is picking up. A consolidation of this trend would be a welcome development.
Business conditions as reported in surveys are at a high level and capacity utilisation
has risen. A large pipeline of infrastructure investment is also supporting the outlook.
Against this, slow growth in real wages and high levels of household debt are likely to
constrain growth in household spending.
Employment has continued to grow strongly over recent months. Employment has increased
in all states and has been accompanied by a rise in labour force participation. The
various forward-looking indicators point to solid growth in employment over the period
ahead, although the unemployment rate is expected to decline only gradually over the
next couple of years.
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 also remains low and is expected to pick up gradually as the economy
strengthens.
The Australian dollar has appreciated since mid year, partly reflecting a lower US
dollar. The higher exchange rate is expected to contribute to continued subdued price
pressures in the economy. It is also weighing on the outlook for output and employment.
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 incomes for some
time. To address the medium-term risks associated with high and rising household
indebtedness, APRA has introduced a number of supervisory measures. Following some
tightening in credit conditions, growth in borrowing by investors has slowed a little
recently. In the housing market, conditions continue to vary considerably around the
country. Housing prices have been rising briskly in some markets, while in others they
have been declining. In Sydney, where prices have increased significantly, there have
been further signs that conditions are easing. 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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