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RBA Aware of Recent Rise in Yields

The April RBA meeting contained little surprise. Policymakers left the cash rate unchanged at 1.5% and made few changes in the policy statement. The central bank remained upbeat on growth and employment. Yet, it remained wary of the slow growth in wage. Meanwhile, the members took note of the recent decline in commodity prices and higher global short term interest rates. While the next rate move would likely be a hike, it might not be implemented for the rest of the year.

The central bank noted that business conditions are “positive” while non-mining business investment is “increasing”. While acknowledging slowdown in exports in late 2017, the members remained confident that exports growth would strengthen again later this year. Yet, it cautioned that household income growth stayed sluggish despite elevated debt levels. This might weigh on the level of household income. The employment situation has been strong as the decline in unemployment rate was accompanied with higher participation rate. The members repeated the concerns over slow wage growth, a situation that might continue for some time but the impact of strong economic growth is eventually passed to wage.

What was new in this meeting was the discussion on the higher short term rates. The members noted the recent “tightening of conditions in US dollar short-term money markets”, as a result of Fed funds rate hike. The members indicated that higher rates have been transmitted to other economies, including Australia. Yet, this has not yet caused a problem in the country. We expect the RBA would continue monitoring the development for now.

The monetary stance remained unchanged. As reiterated in the statement, “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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