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RBA leaves rates on hold.
Published on 04.04.2017 19:59

The Australian dollar is sharply lower today after a monetary speech earlier today from the RBA who raised concerns over

At 4.31pm(GMT) the Aussie dollar was trading at US75.62c down from 76.04c in yesterday’s trading.

Although the RBA kept rates on hold today at 1.5 percent, the following monetary statement was noticeably dovish with governor Philip Lowe pointing to the unemployment rate and low inflation as some of the primary factors which many analysts predict leaves an interest rate cut possible in the nearest future,

"Some indicators of conditions in the labor market have softened recently. In particular,the unemployment rate has moved a little higher and employment growth is modest. The various forward-looking indicators still point to continued growth in employment over the period ahead. Wage growth remains slow" Mr Lowe said

"Inflation remains quite low. Headline inflation is expected to pick up over the course of 2017 to be above 2 per cent. The rise in underlying inflation is expected to be a bit more gradual with growth in labor costs remaining subdued."he added

Cutting rates remains a major headache for the RBA as any reduction is likely to see borrowers take on more credit for real estate which will push up house prices even further which will lead to an inevitable crash in prices,


"The RBA Governor has made clear in previous public pronouncements that while the Bank would like to see the unemployment rate come down more quickly and inflation return to target more quickly, the Bank has had concerns that a further cut in interest rates could induce some households to borrow beyond their means." Noted Ivan Colhoun at National Australia Bank

"The Governor has also noted that if the unemployment rate were to begin to rise, then the Bank could reassess the question about the time taken to return to the inflation target  and implicitly would be more likely to reduce interest rates". He added.


Andrew Masters

Analyst

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