Analysis: RBA Rate Unchanged On Lower AUD, Housing View Upgrade

By Sophia Rodrigues

The lower Australian dollar and an upgrade in view on housing sector are two main reasons behind the Reserve Bank of Australia’s decision to leave the cash rate unchanged at 0.75% at the first board meeting of the year.

The RBA also left the dovish bias intact to reflect global and domestic uncertainties, and equally importantly, to account for expectations of some more easing by other central banks.

The trigger for the next cut is therefore likely to come from policy actions from global central banks, especially if they result in upward pressure on the Australian dollar. In short, the exchange rate would determine the timing of the RBA’s next rate cut.

In the statement Tuesday, the RBA once again acknowledged the lower cash rate has put downward pressure on the exchange rate which is “around its lowest level over recent times,” and is supporting activity across a range of industries.

The RBA has upgraded its view on housing construction which was one of the key sources of uncertainties in November when it last prepared its set of economic forecasts. The RBA is relying on rising housing prices to boost spending and increase dwelling construction activity, and thus make a contribution to growth earlier than it previously expected.

On inflation, the RBA’s outlook is largely unchanged. The RBA is expecting headline inflation to briefly rise above 2% before returning below 2% but doesn’t expect this to lead to higher trimmed mean inflation.

--Contact: sophia@centralbankintel.com