Australia’s central bank maintained its benchmark interest rate unchanged at a record low on Tuesday, as widely expected.
The board of the Reserve Bank of Australia, governed by Philip Lowe, voted to maintain the cash rate at 1.50 percent. The interest rate has been at the current level since August 2016.
“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,” the bank said in a statement.
The RBA reiterated that 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, the bank repeated.
Bill Evans, an economist at Westpac, expects RBA to keep the cash rate on hold over the extended period.
Paul Dales, a Capital Economics’ economist, said the assessment that the economy won’t live up to the RBA’s high hopes is consistent with interest rates staying at 1.5 percent until late in 2019 if not until sometime in 2020.
The outlook for the labor market remains positive, the RBA observed. The central bank forecast a further gradual decrease in the unemployment rate over the next couple of years to around 5 percent.
The improvement in the economy should see some further lift in wages growth over time, although this is likely to be a gradual process, the bank said.
Inflation currently stays around 2 percent. Nonetheless, it is forecast to be higher in 2019 and 2020.
The central forecast is for growth of the economy to average a bit above 3 percent this year and next, the RBA said. In the first half of this year, the economy is estimated to have grown at an above-trend rate.
However, the bank noted that one continuing source of uncertainty is the outlook for household consumption.
Quarterly national accounts data is due on Wednesday. The economy is forecast to expand 0.7 percent sequentially in the second quarter, slower than the 1 percent growth seen a quarter ago.
On the housing market, the RBA noted that conditions in the Sydney and Melbourne housing markets have continued to ease and nationwide measures of rent inflation remain low.
Reflecting reduced demand by investors, housing credit growth declined to an annual rate of 5.5 percent. Lending standards were also tighter than they were a few years ago.