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Home>RBA Holds Interest Rates, Remains Cautious on Outlook

RBA Holds Interest Rates, Remains Cautious on Outlook

RBA Holds Interest Rates, Remains Cautious on Outlook

10/03/2017

 By James Glynn 

SYDNEY--Australia's central bank left its benchmark interest rate on hold as expected, balancing concerns around high household debt and weak wages growth with signs of a stronger job market.

The cash rate target was held at a record-low 1.5%, where it has remained since August 2016.

"Wages growth remains low. This is likely to continue for a while yet, although the stronger conditions in the labor market should see some lift in wage growth over time," said RBA Governor Philip Lowe in a statement.

The Australian dollar dipped on the commentary by Mr. Lowe, which offered little for those expecting interest rates to rise early next year.

Mr. Lowe also kept the focus on the Australian dollar, which recently traded at two-year highs, warning it could hold back both economic recovery and hopes of higher inflation over the medium term.

"The higher exchange rate is expected to contribute to continued subdued price pressures in the economy. It is also weighing on the outlook for output and employment," he said. "An appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast."

Still, strength in job creation over the past six months has seen financial markets grow more confident about interest-rate increases in 2018. Non-mining investment has also picked up with the RBA happy that firms are rediscovering their "animal spirits."

"Until we see a sustainable pick up in consumption, higher cash rates remain a long way off," said David Choi, head of Australian macro at Aberdeen Standard Investments.

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