RBA leaves cash rate unchanged in first meeting of 2020

In their first meeting of 2020, the Reserve Bank of Australia (RBA) has decided to leave the cash rate unchanged at 0.75%. This was expected due to the three major cuts to the cash rate last year, and the fact that the economy is responding relatively well to the current rate.

As RBA Govenor Philip Lowe explained, the outlook for the global economy remains fairly reasonable. This is mainly due to the fact that the slowdown in global growth that began in 2018 is beginning to end, and low inflation in most countries is boosting consumer sediment. The RBA believes that housing sector looks likely to grow strongly throughout the year, which bodes well for increases to household spending. The overall outlook is also being supported by the low level of interest rates, recent tax refunds, ongoing spending on infrastructure, a brighter outlook for the resources sector and, later this year, an expected recovery in residential construction. Inflation remains low and stable.

Several situations worldwide and in Australia have the RBA slightly concerned however, They comment that continuing uncertainty about the trade and technology dispute between the US and China is a potentially high risk impact on growth, although progress in resolving this is lifting sediment. Of course now the corona virus is also having a significant effect on the Chinese economy which is progressively flowing through to other major economies. Similarly the affects of the Australian bushfires are also currently being felt, although it is also too early to comment on how they will continue to affect the economy in the long-term.

The RBA have explained that they believe the Australian economy will grow by about 2.75% in 2020, and 3% in 2021, which would be an increase over the growth rates of the past two years. With unemployment declining to 5.1% in December of 2019, and wages growth expected to remain subdued, upward inflationary pressures remain low. As Mr Lowe said, “A further gradual lift in wages growth would be a welcome development and is needed for inflation to be sustainably within the 2–3 per cent target range.”

There are continuing signs of a pick-up in established housing markets which will be welcomed by PropertyMash buyers. This is especially so in Sydney and Melbourne, but prices in some other markets have also increased. Incidental feedback from real estate agents to our PropertyMash journalists is that both Melbourne and Sydney demand is very patchy and varies suburb to suburb at present.

Mortgage loan commitments have also picked up, although demand for credit by investors remains subdued. Mortgage rates are at record lows and there is strong competition for borrowers of high credit quality. Credit conditions for small and medium-sized businesses remain tight.

Read more here: Statement by Phillip Lowe, Monetary Policy Decision (source: Reserve Bank of Australia).

Written: 7 February 2020

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