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RBA Leaves Cash Rate Unchanged (December)

The Reserve Bank has confirmed its decision to leave the official cash rate unchanged at 1.5 per cent during the board’s final monetary policy meeting for the 2016 year. This announcement, coupled with minor monetary policy changes, comes just in time for the Christmas holidays.

The RBA has reduced the official cash rate twice in 2016, with the current historic low staying in place since August. This rate is projected to stay in place during early 2017, and predictions indicate that the rate will continue to move towards a positive direction in future also.

With the global economy growing at a stable but lower than average pace, global inflation levels remain balanced due to reduced cost pressures around the world. Weak growths in labour costs are expected to see inflation levels “remain low for some time, before returning to normal levels.” The labour market in advanced economies has improved over the last year, alongside China’s economic outlook.

On a national level, the Australian economy continues its transition following the mining investment boom. Additionally, rising commodity prices have led to an increase in Australia’s terms of trade. However, trade levels are still much lower than they have been in recent years. This is also in line with the prospect of business investment, which is above average levels, yet still much lower than prior years.

The unemployment rate has reduced throughout the course of 2016, with part-time employment rising, albeit the overall employment growth rate slowing down. “There continues to be considerable variation in employment outcomes across the country”. In spite of this, employment is likely to expand in the near-term

RBA Governor Philip Lowe stated that “conditions in the housing market have strengthened overall, although they vary considerably around the country.” Growth in rent has slowed down immensely compared to previous decades, whilst a strong supply of apartments is forecasted, particularly for the Eastern capital cities.

“The board touched on the recent lift in global bond yields in the wake of Donald Trump’s victory in the US presidential election, noting that while they had risen, the adjustment had been orderly”.

If you have any questions about how this will affect you, please get in touch today.

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