The Reserve Bank of Australia has decided in it’s monthly board meeting today to leave interest rates on hold at 4.5 percent as it waits on second quarter inflation data from the ABS.
The RBA believes that while the global economy has expanded over recent months, the pattern of growth is inconsistent and major advanced economies such as the USA and Europe have shown lackluster growth. Fears over a slow down in growth in the Chinese economy have influenced the RBA’s decision, in addition to the recent fiscal tightening of Governments in both Europe and the US.
Domestic consumption is growing modestly, with households displaying a degree of caution on purchases, but most indicators suggest business investment will increase over the coming year. Business credit appears to have stabilised after earlier tightness, though credit conditions for some sectors remain difficult. Credit outstanding for housing has continued to expand at a solid pace, but dwelling prices are rising more slowly than earlier in the year.
The Australain labour market has continued to improve gradually, with wages returning to growth after a decline last year. Underlying inflation appears likely to be in the upper half of the target zone over the next year. The rate of CPI increase is likely to be a little above 3 percent in the near term, due to the effects of increases in tobacco taxes announced earlier in the year and significant increases in prices for electricity and water.
The RBA deemed the current setting of monetary policy and resultant interest rates charged to borrowers (at around 7 percent on home loans) to be around their average levels of the past decade. The RBA intends on waiting until second quarter inflation data is released in late July from the ABS before considering increasing interest rates any further.