Statement by Philip Lowe, Governor: Monetary Policy Decision - February 2018 | Media Releases | RBA
Central bank: rba | Type: statement | Date: 2018-02-06

Media Release
Statement by Philip Lowe, Governor:
Monetary Policy Decision
6 February 2018
At its meeting today, the Board decided to leave the cash rate unchanged at 1.50 per cent.
There was a broad-based pick-up in the global economy in 2017. A number of advanced
economies are growing at an above-trend rate and unemployment rates are low. Growth has
also picked up in the Asian economies, 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
The pick-up in the global economy has contributed to a rise in oil and other commodity
prices over recent months. Even so, Australia's terms of trade are expected to decline
over the next couple of 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. 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economy, a number of central banks have withdrawn some monetary stimulus.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 for the Australian economy is for GDP growth to pick up, to
average a bit above 3 per cent over the next couple of years. The data over
the summer have been consistent with this outlook. Business conditions are positive and
the outlook for non-mining business investment has improved. 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 grew strongly over 2017 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. There are reports that some employers are
finding it more difficult to hire workers with the necessary skills.
Inflation is 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.
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. To address the medium-term risks associated with high and rising
household indebtedness, APRA introduced a number of supervisory measures. Tighter credit
standards have also been helpful in containing the build-up of risk in household balance
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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