RBA Leaves Rates Unchanged at First Meeting in 2018
As expected, the RBA kept the cash rate unchanged at 1.5%. Politicians have become slightly more optimistic in forecasting domestic growth, predicting that GDP will slightly exceed 3% in the next couple of years, and inflation will rise above 2% in 2018. Globally, inflation remains low, although higher commodity prices and harsh labor markets are likely to cause inflation to rise in the next few years.
The Central Bank of Australia noted that employment increased dramatically in 2017, and the unemployment rate declined. Despite the improvement of the labor market, wage growth remains low. This is likely to continue for some time, although a stronger economy should cause some increase in wage growth over time.
Regarding the outlook for monetary policy, the RBA retained the view that the low level of interest rates continues to support the Australian economy. Markets expect the first rate increase in the second half of 2018.
On a trade-weighted basis, the Australian dollar remains within the range that has been over the past two years. It is expected, that the growth of the exchange rate will mean a slower growth in economic activity and inflation than is currently forecast.