Statement by Philip Lowe, Governor: Monetary Policy Decision - May 2017 | Media Releases | RBA
Central bank: rba | Type: statement | Date: 2017-05-02

Media Release
Statement by Philip Lowe, Governor:
Monetary Policy Decision
2 May 2017
At its meeting today, the Board decided to leave the cash rate unchanged at 1.50 per
There has been a broad-based pick-up in the global economy since last year. Labour
markets have tightened further in many countries and forecasts for global growth have
been revised up. Above-trend growth is expected in a number of advanced economies,
although uncertainties remain. In China, growth is being supported by increased spending
on infrastructure and property construction, with the high level of debt continuing to
present a medium-term risk. The improvement in the global economy has contributed to
higher commodity prices, which are providing a significant boost to Australia's national
income. Australia's terms of trade have increased, although some reversal of this is
occurring.
Headline inflation rates have moved higher in most countries, partly reflecting the
higher commodity prices. Core inflation remains low. Long-term bond yields are higher
than last year, although in a historical context they remain low. Interest rates have
increased in the United States and there is no longer an expectation of additional
monetary easing in other major economies. Financial markets have been functioning
effectively.
The Bank's forecasts for the Australian economy are little changed. Growth is expected
to increase gradually over the next couple of years to a little above 3 per cent. The
economy is continuing its transition following the end of the mining investment boom,
with the drag from the decline in mining investment coming to an end and exports of
resources picking up. Growth in consumption is expected to remain moderate and broadly
in line with incomes. Non-mining investment remains low as a share of GDP and a stronger
pick-up would be welcome.
Indicators of the labour market remain mixed. The unemployment rate has moved a little
higher over recent months, but employment growth has been a little stronger. The various
forward-looking indicators still point to continued growth in employment over the period
ahead. The unemployment rate is expected to decline gradually over time. Wage growth
remains slow and this is likely to remain the case for a while yet.
The outlook continues to be supported by the low level of interest rates. Lenders have
announced increases in mortgage rates, particularly those paid by investors and on
interest-only loans. The depreciation of the exchange rate since 2013 has also assisted
the economy in its transition following the mining investment boom. An appreciating
exchange rate would complicate this adjustment.
Inflation picked up to above 2 per cent in the March quarter in line with the Bank's
expectations. In underlying terms, inflation is running at around 1¾ per cent, a little
higher than last year. A gradual further increase in underlying inflation is expected as
the economy strengthens.
Conditions in the housing market continue to vary considerably around the country.
Prices have been rising briskly in some markets and declining in others. 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 are the slowest for two decades.
Growth in housing debt has outpaced the slow growth in household incomes. The recently
announced supervisory measures should help address the risks associated with high and
rising levels of indebtedness.
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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