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Weekly Economic Commentary

Weekly Economic Commentary

Categories: General, General

As was widely expected, the Reserve Bank left the official cash rate unchanged at 1.50% last week. This matches the previous record for the number of Board meetings where the cash rate remained unchanged with no plans to move signalled in the near term (refer chart below).

RBA Governor Philip Lowe said in the accompanying statement that “The outlook for non-mining business investment has improved further, with the forward-looking indicators being more positive than they have been for some time” but “One continuing source of uncertainty is the outlook for household consumption. Household incomes are growing slowly and debt levels are high.” He also said the economy grew at around its “trend rate” over the year to the third quarter.

The International Monetary Fund last month acknowledged that tepid wage growth meant the RBA may need to extend its rate pause for another 12 months. In contrast, the Organisation for Economic Cooperation and Development urged policy makers to raise rates in the second half of 2018 as the pick-up in wages and prices becomes more entrenched.

Lowe said two weeks ago that if the economy continues to improve as expected, the next move in rates will be up rather than down. But, he added, continued spare capacity and a subdued inflation outlook meant there isn’t a strong case for a near-term adjustment in policy.

Financial markets see little chance of a rate increase before December 2018 and the median estimate of economists is for tightening to begin in the fourth quarter of next year. The RBA Board doesn’t convene in January, so the next meeting will be held on 6 February, 2018.

Australian cash rate target

To end the year with a bit of trivia, I heard that 32 year-old Saudi Crown Prince Mohammad bin Salman was the true buyer of the da Vinci painting that sold for a record US$450m at auction two weeks ago. Impressive but not as remarkable (and I use this work with caution) as the latest surge in the Bitcoin price, which passed the US$15,000 threshold last week compared to its 2017 starting price of around US$800. A mere $24m investment in Bitcoin at the start of the year would have yielded you enough crypto-cash to have outbid the Crown Prince.

Bitcoin growth

This will be our last Weekly Economic Commentary publication for 2017. The Rural Bank Treasury Team wishes you compliments of the Season and look forward to being back with the next edition of the Weekly Economic Commentary in early January 2018.

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Source: Rural Bank


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