The Reserve Bank has continued to hold the cash rate at a historic low of 1.5%, as widely expected. In its statement, the RBA cited improving labour conditions in advanced economies and steadying economic conditions in china, as caused by a growth in infrastructure and property construction, but at too low a pace to change the rate.
Risks remained for the bank, where inflation in Australia still held at its low of 1.3%, well below the RBA’s target of 2-3%.The subdued growth in labour costs has limited available disposable incomes, translating to lower inflation figures. The low-interest rates are intended to uplift slackening domestic demand, but an appreciating Australian dollar is tempting to complicate this plan with its potential to decrease the value of exports.
The OECD believes the next move in RBA interest rates will occur before the end of 2017, and will be looking up. In a review of the Australian economy as part of its report on the Global Economic Outlook, it says a change will be “appropriate, given likely monetary policy developments elsewhere, the cyclical development of the domestic economy, and the need to unwind tensions from the low-interest environment, notably in the housing market”.