July Monetary Policy Decision


  • Cash rate to remain at 1.5%
  • Broad-based pick-up in global economy continuing; labour markets tightening in many countries; forecasts for global growth have been revised up wards from last year.
  • China: while growth is being supported by increased spending on infrastructure and property construction, high levels of debt continue to present a medium-term risk
  • Rise in commodity prices over past year has boosted our national income
  • Headline inflation rates have recently declined in response to lower oil prices
  • Both wage growth and core inflation has subdued internationally
  • Increases in US interest rate are expected; no longer an expectation of further international monetary easing
  • Financial markets – functioning effectively and volatility remains low
  • GDP growth in Australia slowed in the March Q – partly a reflection of temporary influences.
  • Transition to lower levels of mining investment following the mining investment boom almost complete
  • Domestic business conditions have improved and capacity utilisation has increased, especially in areas not affected by the decline in mining investment
  • Consumption growth remains subdued – product of slow growth in real wages and higher levels of household debt
  • Employment growth has been stronger over recent months – expected to continue to grow
  • Inflation expected to increase gradually as economy slowly strengthens
  • Deprecation of the exchange rate since 2013 has assisted our transition to other sources of growth besides mining – an appreciation, which could potentially be induced by higher interest rates, could complicate this adjustment
  • Housing market conditions vary considerably around the country:
    • in the eastern capital cities, an additional supply of apartments is scheduled to come on stream over the following years
    • Rent increases are the slowest for two decades
  • Growth in housing debt has outpaced slow growth in household income
  • Tighter rules imposed by APRA should help address the risks associate with high and rising levels of household debt

Australian dollar falls on the news:

  • Dollar fell to 76.1 US cents from 76.8 US cents ahead of the RBA’s statement
  • There has been an unspoken consensus amongst financial speculators that interest rates and monetary policy are in a period of tightening à thus upon the news that the RBA has kept interest rates at their previous, speculators have withdrawn their AUD.
  • January 2013: Exchange rate of AUD stood at $US1.05
  • Panel assembled for the midyear Scope BusinessDay economic survey expects the dollar to continue to slide to beneath 72 US cents over the course of the financial year accompanied by no change in the cash rate




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