In line with our expectation, the Reserve Bank Australia (RBA) kept its official cash rate at its historic low of 1.5% for the 16th straight month. The decision to hold rates is driven by the strong dollar which will weigh on the economic growth, inflation and employment. We feel the current low interest rates should continue to support the GDP. The high household debt and low wage growth will act as hurdles to growth despite a pickup in retail sales which could enjoy an upside, albeit limited.

Meanwhile, we expect the central bank to maintain the current interest rates in 2018. Any decision to raise rates will depend on how the GDP, inflation and financial stability craft out. Our probability for the RBA to raise rates in 2H2018 by 25 basis points remains low at less than 30% chance for now.

• In line with our expectation, the Reserve Bank Australia (RBA) kept its official cash rate at its historic low of 1.5% for the 16th straight month. The last time the RBA reduced its official cash rate was in August 2016 by 25 basis points.
• The decision for the RBA to hold rates is driven by the strong dollar which will weigh on the economic growth and employment. Also the strong currency is putting a lid on the current low inflation from reaching the 2%-3% target range.
• We feel the current low interest rates should continue to support the GDP. We expect the policy rate to remain at current levels given the high household debt and low wage growth will act as hurdles to growth despite a pickup in retail sales which could enjoy an upside, albeit limited. Basically, the RBA is stuck with the current rates.

• Meanwhile, we expect the central bank to maintain the current interest rates in 2018. Any decision to raise rates will depend on how the GDP, inflation and financial stability craft out. Our probability for the RBA to raise rates in 2H2018 by 25 basis points remains low at less than 30% chance for now.

Source: AmInvest Research - 6 Dec 2017