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RBA: November cash rate

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The RBA has decided to leave the official cash rate unchanged at 0.75% as it assesses the impact of its June, July, and October cuts.

In making this decision not to drop rates again, the RBA will have considered strong evidence of an improving housing market, supported by rising house prices in most capital cities, particularly in Sydney and Melbourne. There are further signs of a turnaround in established housing markets, however, in contrast, new dwelling activity is still declining and growth in housing credit remains low.

In making the decision to hold rates, the RBA will be keeping a close look on household consumption following lower than expected retails sales in September.

The three previous rate reductions, along with tax cuts, have failed to restore inflation to within its target range of 2 – 3% pa.

While the outlook for the global economy remains reasonable, the risks are tilted to the downside. The US–China trade and technology disputes continue to affect international trade flows and investment as businesses scale back spending plans because of the uncertainty. At the same time, in most advanced economies, unemployment rates are low and wage growth has picked up, although inflation remains low. In China, the authorities have taken steps to support the economy while continuing to address risks in the financial system.

Interest rates are very low around the world and a number of central banks have eased monetary policy in response to the persistent downside risks and subdued inflation. Expectations of further monetary easing have generally been scaled back over the past month and financial market sentiment has improved a little. Even so, long-term government bond yields are around record lows in many countries, including Australia. Borrowing rates for both businesses and households are also at historically low levels. The Australian dollar is at the lower end of its range over recent times.

Employment has continued to grow strongly and has been matched by strong growth in labour supply, with labour force participation at a record high. The unemployment rate has remained steady at around 5¼ per cent over recent months. It is expected to remain around this level for some time, before gradually declining to a little below 5 per cent in 2021. Wage growth remains subdued and is expected to remain at around its current rate for some time. A further gradual lift in wage growth would be a welcomed development and is needed for inflation to be sustainable within the 2–3 per cent target range. Taken together, recent outcomes suggest that the Australian economy can sustain lower rates of unemployment and underemployment.

Becoming more bullish on the economy prior to the announcement was AMP Capital’s Shane Oliver, who believes the market is currently having a gentle upswing.

“While September quarter inflation was low and economic data has generally remained soft, recent RBA commentary highlighting a gentle upturn in growth and greater tolerance for low inflation suggests a lack of urgency to ease for now,” he said.

Comparison site Finder had surveyed 45 of the nation’s leading economists and commentators, and found a majority expecting a rate cut to be held off until February next year.

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