Australia's central bank holds interest rates


FE Team | Published: March 06, 2018 15:14:18 | Updated: March 08, 2018 11:48:27


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The Reserve Bank of Australia (RBA) has left interest rates at record lows, as expected, and sounded less confident that the country’s economy would grow at 3.0 per cent or more this year.

The central bank expects the country’s gross domestic product (GDP) to “grow faster in 2018 than it did in 2017,”reports Reuters.

The change in rhetoric comes as analysts downgrade forecasts for fourth-quarter GDP, due Wednesday.

A Reuters poll of analysts last week showed economists expect GDP to have expanded by 0.6 per cent on quarter and 2.5 per cent on year in the December quarter.

However, recent soft indicators have prompted analysts to trim these expectations to rises of around 0.5 per cent and 2.4 per cent, respectively.

Tom Kennedy, Sydney-based senior economist at JPMorgan said, “The RBA has definitely softened its language around growth.”

“I think the change means gradually and very slowly they’re stepping away from the 3.0 per cent target,” he said.

“Wage growth has been low, consumption has been really weak since mid-2017, net exports have been weaker than RBA’s expectations. So when you add up all the bits and pieces you get a small figure.”

Analysts are divided evenly on the chance of a rate hike by December, while interest rate futures are not fully priced for a 25-basis point rise until early 2019.

The RBA is one of the less hawkish central banks in the developed world.

The US Federal Reserve is expected to raise rates at least three times this year and the European Central Bank is seen stepping back from its massive asset buying programme soon.

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