RBA holds OCR at 1.5%. Neutral bias remains

Here’s the statement by governor Phil Lowe:

At its meeting today, the Board decided to leave the cash rate unchanged at 1.50 per cent.

Conditions in the global economy are continuing to improve. Labour markets have tightened further and above-trend growth is expected in a number of advanced economies, although uncertainties remain. Growth in the Chinese economy is being supported by increased spending on infrastructure and property construction, with the high level of debt continuing to present a medium-term risk. Commodity prices have risen recently, although Australia’s terms of trade are still expected to decline over coming years.

Wage growth remains low in most countries, as does core inflation. Headline inflation rates have declined recently, largely reflecting the earlier decline in oil prices. In the United States, the Federal Reserve expects to increase interest rates further and there is no longer an expectation of additional monetary easing in other major economies. Financial markets have been functioning effectively and volatility remains low.

The recent data have been consistent with the Bank’s expectation that growth in the Australian economy will gradually pick up over the coming year. The decline in mining investment will soon run its course. The outlook for non-mining investment has improved recently and reported business conditions are at a high level. Residential construction activity remains at a high level, but little further growth is expected. Retail sales have picked up recently, although slow growth in real wages and high levels of household debt are likely to constrain future growth in spending.

Employment growth has been stronger over recent months and has increased in all states. The various forward-looking indicators point to solid growth in employment over the period ahead. The unemployment rate is expected to decline a little over the next couple of years.

Wage growth remains low. This is likely to continue for a while yet, although stronger conditions in the labour market should see some lift in wages growth over time. Inflation also remains low and is expected to pick up gradually as the economy strengthens.

The Australian dollar has appreciated over recent months, partly reflecting a lower US dollar. The higher exchange rate is expected to contribute to the subdued price pressures in the economy. It is also weighing on the outlook for output and employment. An appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast.

Conditions in the housing market continue to vary considerably around the country. Housing prices have been rising briskly in some markets, although there are signs that conditions are easing, especially in Sydney. In some other markets, prices are declining. In the eastern capital cities, a considerable additional supply of apartments is scheduled to come on stream over the next couple of years. Rent increases remain low in most cities.

Investors in residential property are facing higher interest rates. There has also been some tightening of credit conditions following supervisory measures to address the risks associated with high and rising levels of household indebtedness. Growth in housing debt has been outpacing the slow growth in household incomes.

The low level of interest rates is continuing to support the Australian economy. Taking account of the available information, the Board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.

Looks pretty neutral to me.


  1. time for these public servants at the rba who I am paying for disclose property and other interests…after all, who is to know whether they are impartial or not?
    any govt body worker that directly deals with monetary policy should have a register of interests

    note that some of the rba board members are from the property industry..how convenient to keep rates at emergency lows

    • LOL here come the “raise the rates” brigade.
      Raise the rates – that’ll fix it ! Fix what I am not sure………… incoming ………

  2. Rational RadicalMEMBER

    Well, well, well, the RBA is one of the few “Bears” left in the room who can see the credit calamity coming just around the corner -seemingly confirmed by the minor panic setting in around the actual effects of IO macroprudential, and how “strictly” the measures need to be applied. The regulators have been bagged for years for missing (creating) the property bubble, and now they seem to be in the select few remaining who (implicitly) acknowledge the damn thing is going to blow.

    LOL, the MacroBusiness broad church has been out-beared by the RBA. Property to the moon!

    • Relevant StakeholderMEMBER

      The RBA doesn’t have a ‘view’ of the property market, they control it. They are god…they could crash it or make it boom with one statement (in nominal terms at least).

      • Rational RadicalMEMBER

        Yep, just like all the other central bankers of the world – completely in control of everything, always. No denying they’re corrupt and compromised as all hell, but that’s exactly my point. They may be looking out for “themselves”, or their banking overlords, but that is to necessarily admit that banks will suffer if the property market goes down, and ipso facto that further pushing financial imbalances is NOT a way of preventing that outcome. The only thing left is faith that the “permanently high plateau” or “immigration backfilling” can succeed where a century or more of central bankers have ultimately failed.

        Such faith is touching. But it is exactly that. Good luck with it.

      • Relevant StakeholderMEMBER

        As I said…in nominal terms. The fact that an organisation that bribed foreign heads of state is in control of our money supply was the first time I realised the country I loved was dying.

  3. Jake GittesMEMBER

    The statement reads like a Reuters’s release, or some text by a junior journalist who has copied articles from Bloomberg and elsewhere. The reasoning is slight and that is being generous. In any other job such feeble efforts would see the people reviewed out of work. It’s complete laziness.

    • These two consecutive sentences seem at odds:

      “Growth in housing debt has been outpacing the slow growth in household incomes.”
      “The low level of interest rates is continuing to support the Australian economy.”

      I would have said:

      “The low level of interest rates is continuing to sap the Australian economy.”

      • Jake GittesMEMBER

        Exactly: it takes statements which are correct within a defined context and strings them together to create a blended perception but which is not analytically cohesive and is superficially paradoxical. It might have been written by a foreign student. Maybe the RBA is using visa loopholes to get the job done.

      • The first might reflect investor activity or preparedness of new mortgagees to commit to big mortgages with only modest prospect for wages increases to buffer loans (little scope for rate increases).

        The second sentence sounds about right if your consumer economy is heavily reliant on the housing sector, as ours is.

      • Dan,

        It is not your imagination , that statement reflects the shambles that is economic policy in Australia.

        The RBA are acknowledging that past interest rate policy (with plenty of assistance from daft CGT policy) has driven private debt to record high levels and now there are doubts whether income growth can support the level of debt.

        There is no contradiction when they go onto to say that record low rates continue to ‘support’ the Australian economy as all that means is that driving asset price speculation with cheap credit is the ONLY thing supporting the Australian economy.

        But always remember that ultimate limiting factor on the RBA is the exchange rate- only when that falls heavily will the RBA’s ability to further cut interest rates be limited.

        Will they cut rates further?

        They will if they have to and the exchange rate does not prevent them from doing so. At the moment the exchange rate is creating room for more cuts.

        A lot depends on what happens offshore. If the US finally accept that their ‘economic model’ is creating an existential risk, in that with the rise of China they can no longer afford to massively misallocate resources, they may actually stop it and when that happens the US labour market will tighten and US rates will rise faster and further than most imagine possible.

        At that point the RBA will find that they have to choose between the target rate and a crashing AUD. In any event the offshore funding of our mortgage speculations will be rising in price.

  4. i wonder if the rba board knows that eventually the economy is stuffed with the private debt party that they helped to create??

    do they care about their loose policy?

    gotta laugh about the housing conditions easing in Sydney….only rising a brisk 16% yoy RBA in our biggest city…that’s economic vandalism

  5. “Neutral” -you said it not Dr Phil.
    I think the word was removed from the RBA lexicon after the excitement caused by the July minutes.

  6. “In the eastern capital cities, a considerable additional supply of apartments is scheduled to come on stream over the next couple of years.”

    They’ve had this line for a couple of year now, even while Melbourne vacancy rates hit new lows every month and Sydney unit prices and rents keep hitting record highs.

    • So it’s working then?
      Assuming the line is intended to be a dog-whistle to the government to keep the border gates open wide and the big neon sign reading “welcome, c’mon in” glowing brightly.

  7. “The low level of interest rates is continuing to support the Australian economy.”

    I had in mind to write a long mixture of obscene divine imprecations. However let’s say what this really means

    “The Australian economy is dependent on the low level of interest rates that drive the rising debt level. The rising debt level is now both public and private resulting in a continued Current Account Deficit. As a result the strong Aussie dollar, necessary to stop the economy dropping into nightmare stagflation, is now dependent on the continued sale of resources. businesses, houses, farms and public assets to foreign interests.”

    THAT would be a cogent statement instead of the idiocy that ‘low level of interest rates is continuing to support the Australian economy’ which is a total lying croc of …. !!! The only question that remains is does the RBA know that what they are saying is a lying croc of …. and they are up to their ears in the fraud being perpetrated on the Australian people and should be tried for treason? Or are they totally ignorant of the simplest fundamental economics and should ALL immediately be fired?

  8. The thing that has stood out for me in these comments is US rising rates, economy going well (to be expected under Trump), and decreasing unemployment. That all sounds good BUT cost of funding for AUS banks will go UP ^^^^^

    What does that mean for us. As wages are in the stage of deflation (using the UK method on reporting CPI that includes cost of servicing home loans) an increase in domestic rates (let’s forget the RBA, as we’ve seen on this site, they have decoupled from banks rates), you are looking at something that can’t be controlled…..an inability for 1/3 of home loan customers to pay of their loan……. as we saw in the papers today, 1/3 of borrowers can’t afford to pay more than what they currently are…………

    USA raising rates…this is the real issue in all this………. as tipping points go.

    • Yes – people have tended to downplay that happening because they have assumed that Trump will not actually deliver on his promise to drive production back on shore and productive investment in infrastructure etc. If that does not happen, so the thinking goes, the US economy will start to sag and the US Fed will not be able to keep raising rates.

      And there is some good reasons so far to question whether Trump will deliver.

      But the thing that is outside US control is China and China has been very determined in maintaining state control over credit creation. For all of the ghost cities and memes of that nature the fact remains that China has been channelling vast amounts of investment into stuff that is actually expanding the Chinese economy.

      Forget about the risk of war as that is not really the threat the US is facing. The threat the US is facing is that China’s capacity to spend and win hearts and minds around the world is increasingly dramatically because China is focused on productive investment.

      The US simply cannot afford to keep pissing away resources on speculation and asset price ponzi schemes.

      Neither can Australia of course but we are a bunch of lotus eating boofheads and our fate will be to moan about how no one warned us that running up massive external liabilities was an exercise in self indulgence and stupidity.

      Rich counties like Australia should be exporters of capital not importers of capital – especially when the capital we import is being pumped into speculation and consumption.

      But don’t tell clowns like David Uren, Ross Gittins, Jessica Irvine et al as they all think that unproductive capital inflows are perfectly fine.

  9. September 5 2017, Governor of the Reserve Bank of Australia…
    “…In some cases, loans were being made where the borrower had only the slimmest of spare income,” Dr Lowe said.
    Fuck Phil…do you reckon???