RBA should "maintain vigilance" with rates

by Rebecca Pike01 Jun 2018

As the Reserve Bank of Australia (RBA) gets ready to make another decision on cash rates, experts are discussing the unlikelihood of a rise until next year.

The RBA has kept rates at a record low of 1.5% since August 2016. Governor Philip Lowe, who will make the next rates announcement on Tuesday (5 June), has previously said the next move will be a hike.

After the last announcement at the start of May, may predicted the hike would be later this year, but some are now thinking it will not be until 2019.

Chief operating officer at HashChing, Siobhan Hayden, predicted the rise would depend on inflation and wage growth. Markets are now seeing little chance of one before the middle of 2019.

The Organisation for Economic Co-operation and Development (OECD) released its 2018 outlook this week and said that "monetary policy remains supportive". It expects the economy to continue growing at a robust pace of around 3% and believes the central bank will begin tightening towards the end of this year.

It added, "Withdrawal of stimulus is projected to begin towards the end of 2018, as wage and price growth are expected to pick up further on account of a continued strengthening of activity and labour market performance. The resulting boost to household incomes should mitigate risks associated with Australia’s very high household indebtedness."

The group also focused on the housing market, which it said shows "signs of easing".

It continued, "House price growth has slowed markedly and housing loan approvals have edged down, partly thanks to macro-prudential measures.

"Regulators have taken steps to limit growth of investor lending and have discouraged loans with high loan-to-value ratios. Aggregate indicators of household financial stress are low, although some areas – mining regions in particular – remain a concern. Macro-financial risks from leveraged households and the housing market remain elevated, and the central bank and supervisors should therefore maintain vigilance."

 

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