The Reserve Bank of Australia (RBA) has kept the cash rate on hold at an historic low of 1.5 per cent for the eighteenth month in a row.
The cash rate has been left unchanged since August 2016.
In a statement released today, Governor Philip Lowe attributed the decision to hold the cash rate to high household debt levels and slow wage growth.
“One continuing source of uncertainty is the outlook for household consumption. Household incomes are growing slowly and debt levels are high,” said Governor Lowe.
Wage growth levels, as well as inflation, are expected to stay low for a while, however the RBA paints an optimistic picture looking forward.
“The stronger economy should see some lift in wage growth over time.
“Inflation is low, with both CPI and underlying inflation running a little below 2 per cent. Inflation is likely to remain low for some time, reflecting low growth in labour costs and strong competition in retailing.
“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.
Governor Philip Lowe also looked to housing prices and global inflation levels as influential factors in today’s decision.
“Nationwide measures of housing prices are little changed over the past six months, with prices having recorded falls in some areas.
“In the eastern capital cities, a considerable additional supply of apartments is scheduled to come on stream over the next couple of years.
“To address the medium-term risks associated with high and rising household indebtedness, APRA introduced a number of supervisory measures. Tighter credit standards have also been helpful in containing the build-up of risk in household balance sheets.
“Globally, inflation remains low, although higher commodity prices and tight labour markets are likely to see inflation increase over the next couple of years.
“The Bank’s central forecast for the Australian economy is for GDP growth to pick up, to average a bit above 3 per cent over the next couple of years,” said Governor Lowe.
The result was widely predicted by economists and experts at RateCity, as the RBA will need to see genuine wages growth and a reduction in household debt levels before they can hike rates again.