Australia’s central bank left its benchmark cash rate unchanged at 1.50 percent, as widely expected, and reiterated its previous guidance that unemployment will continue to decline and inflation return to target, although this will process will be gradual.
The Reserve Bank of Australia (RBA), which last month lowered its growth forecast, said the central scenario is still for the country’s economy to grow around 3 percent this year, supported by rising business investment, higher levels of spending on public infrastructure and higher employment.
The main uncertainty continues to be the strength of household consumption in the context of weak growth in household income and falling home prices in some cities, said RBA Governor Philip Lowe in a statement.
The RBA, which has kept its rate steady since August 2016, also said the global economy had grown above trend in 2018 but then slowed in the second half of last year and this “slower pace of growth has continued into 2019,” adding trade tensions remain a source of uncertainty and downside risks have risen.
In its February monetary policy statement, the RBA lowered its forecast for Australia’s economy to expand by around 3 percent this year and then 2.75 percent in 2020, a drop of around 1/4 percentage point due to a downgrading of the outlook for household consumption and residential construction.
But the RBA also continues to see a positive labour market and rising wages, keeping up the pressure on inflation to rise to about 2 percent later this year and 2.25 percent by end-2020, around the RBA’s target of 2.0 to 3.0 percent.
Australia’s headline inflation rate eased to 1.8 percent in the fourth quarter of 2018 from 1.9 percent while the economy grew 2.8 percent year-on-year in the third quarter of last year, down from 3.1 percent in the second quarter.
The Australian dollar, known as the Aussie, has been weakening for the last 12 months though it has stabilized since mid-February after taking a hit after Lowe on Feb. 6 said the probabilities of a rate hike and a rate cut were now more evenly balanced as compared with earlier in 2018 when the probabilities of a rate hike were higher.
The Aussie was trading at 1.41 to the U.S. dollar following the RBA’s decision, marginally up from 1.42 at the start of the year.
The Reserve Bank of Australia issued the following statement by its governor, Philip Lowe: