Despite the plummeting house prices in Australia, the Reserve Bank (RBA) has maintained the current interest rate at 1.50 per cent for the month of November 2018. This is now the 27th consecutive month where this record low rate has been sustained.
The bank noted in its post decision statement that "forecasts for economic growth in 2018 and 2019 have been revised up a little."
"The central scenario is for GDP growth to average around 3.5 per cent over these two years, before slowing in 2020 due to slower growth in exports of resources," RBA governor Philip Lowe said in his statement on monetary policy.
"Business conditions are positive and non-mining business investment is expected to increase."
Lowe also adds that "growth in household income remains low, debt levels are high and some asset prices have declined. The drought has led to difficult conditions in parts of the farm sector."
On the flip side of weak inflation and falling house prices, the job market remains strong with the unemployment rate falling to 5 per cent, the lowest level since early 2012. The overall economy is growing in line with the RBA's forecasts.
The RBA has lowered its forecast for the unemployment rate to approximately 4.75 per cent by 2020. This is in fact a level regarded as full employment that stimulates wage growth. Once this happens, the bank should be able to bring inflation back to the 2-3 per cent target rate. The last time the unemployment rate was below 5 per cent was nearly a decade ago; back in January 2009.
Consumer confidence has also seen a rise to 1.9 per cent (based on ANZ-Roy Morgan data). The Australian dollar rose up from 72.05 US cents just before the RBA decision, to 72.14 shortly after.
By the end of 2019, interest rate traders put the odds of a 25 basis point increase in the cash rate at around 50 per cent. Economists are a little more optimistic with the median forecast at around 1.75 per cent.
For the official RBA article, please visit the Reserve Bank’s website.