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Economy update: RBA

  • Posted on Tuesday 6th, November 2018.

The Australian economy is performing well, with gross domestic product increased by 3.4 per cent and the unemployment rated declined to five per cent in the last year, according to Reserve Bank of Australia (RBA) Governor, Philip Lowe.

At a meeting held 6 November 2018, the RBA Board decided to leave the cash rate unchanged at 1.50 per cent.

“The forecasts for economic growth in 2018 and 2019 have been revised up a little,” Lowe said in a statement regarding monetary policy decision. “The central scenario is for GDP growth to average around 3.5 per cent over these two years, before slowing in 2020 due to slower growth in exports of resources. Business conditions are positive and non-mining business investment is expected to increase. Higher levels of public infrastructure investment are also supporting the economy, as is growth in resource exports. One continuing source of uncertainty is the outlook for household consumption. Growth in household income remains low, debt levels are high and some asset prices have declined. The drought has led to difficult conditions in parts of the farm sector.”

Lowe said that Australia's terms of trade have increased over the past couple of years and have been stronger than earlier expected. “This has helped boost national income,” he said. “While the terms of trade are expected to decline over time, they are likely to stay at a relatively high level. The Australian dollar remains within the range that it has been in over the past two years on a trade-weighted basis, although it is currently in the lower part of that range.”

The outlook for the labour market remains positive, according to Lowe. “With the economy growing above trend, a further reduction in the unemployment rate is expected to around 4.75 per cent in 2020,” he said. “The vacancy rate is high and there are reports of skills shortages in some areas. Wages growth remains low, although it has picked up a little. The improvement in the economy should see some further lift in wages growth over time, although this is still expected to be a gradual process.”

Lowe said that inflation remains low and stable. Over the past year, Consumer Price Inflation (CPI) was 1.9 per cent and, in underlying terms, inflation was 1.75 per cent. “These outcomes were in line with the Bank's expectations and were influenced by declines in some administered prices due to changes in government policies,” he said. “Inflation is expected to pick up over the next couple of years, with the pick-up likely to be gradual. The central scenario is for inflation to be 2.25 per cent in 2019 and a bit higher in the following year.”

The low level of interest rates is continuing to support the Australian economy, according to Lowe. “Further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual,” he said. “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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