Statement by Philip Lowe, Governor: Monetary Policy Decision - November 2017 | Media Releases | RBA
Central bank: rba | Type: statement | Date: 2017-11-07

Media Release
Statement by Philip Lowe, Governor:
Monetary Policy Decision
7 November 2017
At its meeting today, the Board decided to leave the cash rate unchanged at 1.50 per cent.
Conditions in the global economy are continuing to improve. 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 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 started the process
of balance sheet normalisation and expects to increase interest rates further. In a
number of other major advanced economies, monetary policy has become a bit less
accommodative. Equity markets have been strong, credit spreads have narrowed and
volatility in financial markets remains low.
The Bank's forecasts for growth in the Australian economy are largely unchanged. The
central forecast is for GDP growth to pick up and 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, 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.
The labour market has continued to strengthen. 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. The unemployment rate is expected to decline gradually from its current
level of 5½ per cent. 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.
In underlying terms, inflation is likely to remain low for some time,
reflecting the slow growth in labour costs and increased competitive pressures,
especially in retailing. CPI inflation is being boosted by higher prices for tobacco and
electricity. The Bank's central forecast remains for inflation 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 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. Housing
market conditions have eased further in Sydney. In most cities, housing prices have
shown little change over recent months, although they are still increasing in Melbourne.
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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