The Reserve Bank of Australia (RBA) has held the cash rate yet again at an historic low of 1.5 per cent.
In a statement released today, Governor Philip Lowe attributed the decision to uncertainty for household consumption, low inflation levels, slow household income growth and high debt levels.
However, Governor Philip Lowe was still optimistic, noting that the Bank’s “central forecast for the Australian economy remains for growth to pick up, to average a bit above 3 per cent in 2018 and 2019”.
“This should see some reduction in spare capacity in the economy. Business conditions are positive and non-mining business investment is increasing. Higher levels of public infrastructure investment are also supporting the economy. Stronger growth in exports is expected,” said Governor Lowe.
The RBA continued their optimistic streak, stating that while inflation “remains low”, with both CPI and underlying inflation running “marginally below” 2 per cent, “a gradual pick-up in inflation is, however, expected as the economy strengthens”.
“The central forecast is for CPI inflation to be a bit above 2 per cent in 2018,” said Governor Lowe.
Although, not all economic indicators left the Reserve Bank and Governor Lowe feeling completely optimistic.
“One continuing source of uncertainty is the outlook for household consumption,” said Governor Lowe.
“Although consumption growth picked up in late 2017. Household income has been growing slowly and debt levels are high”.
The RBA also looked to employment levels and wage growth as cause to hold the cash rate at 1.5 per cent.
“Employment has grown strongly over the past year, although growth has slowed over recent months.
“The various forward-looking indicators continue to point to solid growth in employment in the period ahead, with a further gradual reduction in the unemployment rate expected.
“Notwithstanding the improving labour market, wages growth remains low. This is likely to continue for a while yet, although the stronger economy should see some lift in wages growth over time,” said Governor Lowe.