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Weekly Economic Commentary

Weekly Economic Commentary

Categories: General, General

A quick look at some of the main economic indicators shows that not a lot has changed in the last 24 months – during a time where the RBA has left the official cash rate unchanged at 1.50%.  GDP growth has increased significantly and the unemployment rate is a bit lower, but inflation has remained unusually low.

Main Economic Indicators

However, sometimes numbers don’t provide the full picture. In the two years of stable interest rates, the downside risks to economic growth and inflation have faded and the upside risks have grown. That was indeed the message from last week’s RBA board meeting and Statement on Monetary Policy.

In a speech last week, RBA Governor Philip Lowe, sounded a bit more flexible than previously on the possible timing of the first interest rate hike. He once again suggested that you should expect “the next move in interest rates to be up, not down” and that “the Board does not see a strong case for a near-term adjustment in monetary policy”. Further, it’s no surprise that he said the timing of the first hike would depend on the speed at which the unemployment rate falls (to 5%) and inflation returns to the middle of the RBA’s target range (to 2.5%).

However, the new bit was that he said “If we were to make faster progress than we currently expect, any future increase in interest rates is likely to be earlier. Conversely, slower progress would likely see a longer period without an adjustment.” An early move (hike) would require inflation to rise and unemployment to fall – both unlikely to happen any time soon so the timing of the first rate hike remains late next year.

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Source: Rural Bank

 

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