As expected the Reserve Bank of Australia (RBA) left the policy rate unchanged at 1.50% after the last cut in August 2016 by 25bps. We expect the RBA to stay complacent on weak household consumption and inflation. If the GDP growth and underlying inflation stay below 3% and 2% respectively in 2018 as we expect, then the RBA probably will not raise interest rates until late 2019.

As for rate cuts, these seem unlikely given the threat to the financial system from high household debt and housing prices.

• The Reserve Bank has left its official cash rate on hold at a record low for the 15th consecutive month. The decision comes as no surprise. The last cut by the RBA was in August 2016 when rates were brought down by 0.25 percentage points (ppt) to the current low of 1.5%.

• The RBA maintained that the GDP growth will pick up and average around 3% over the next few years. Positive signs have been ongoing strong jobs growth, indications that business investment may at last be picking up, stabilising building approvals after a sharp drop earlier in the year and house prices — particularly in Sydney — coming off the boil.

• On the negative side, wages growth remains insipid, retail sales even worse and inflation is weaker than expected.

• We expect the RBA to stay complacent on weak household consumption and inflation. There is no adequate evidence for a change in the current policy rate. If the GDP growth and underlying inflation stay below 3% and 2% respectively in 2018 as we expect, then the RBA probably will not raise interest rates until late in 2019.

• As for rate cuts, they seem unlikely given the threat to the financial system from high household debt and housing prices.

Source: AmInvest Research - 8 Nov 2017