The Reserve Bank of Australia (RBA), which has maintained its rate since August 2016, said business conditions were positive and non-mining investment was expected to rise while higher levels of public infrastructure investment and growth in resource exports were supporting the economy.
Australia's gross domestic product grew by an annual rate of 3.4 percent in the second quarter of this year, up from 3.2 percent in the first quarter, while the jobless rate unexpectedly dropped to 5.0 percent in September from 5.3 percent in the previous month for the lowest rate since April 2012.
"The Australian economy is performing well," RBA Governor Philip Lowe said in a statement, adding growth in 2020 was expected to slow due to slower exports of resources.
With the economy growing above trend, Lowe expects the unemployment rate to decline further to around 4.75 percent by 2020 and wages should gradually rise as the economy improves.
Lowe added household consumption remains a continuing source of uncertainty as income growth remains low, debt levels are high and some asset prices have declined while drought has affected the farm sector.
As in the previous statement from October, the RBA sounded relatively optimistic about the global economy, saying the expansion was continuing and a number of advanced economies were growth at above-trend rates. While growth in China has slowed, authorities are easing their policy while paying attention to risks in the financial sector.
Although financial conditions in advanced economies remains expansionary, the RBA acknowledged they had tightened recently while equity prices have declined.
Australia's inflation rate remains stable and the RBA forecast it would rise gradually in coming years to 2.25 percent in 2019 and then a bit further in the following year.
In the third quarter Australia's inflation rate eased to 1.9 percent from 2.1 percent in the second quarter due to a decline in some administered prices.
The Reserve Bank of Australia issued the following statement by Governor Philip Lowe:
"At its meeting today, the Board decided to leave the cash rate unchanged at 1.50 per cent.
The global economic expansion is continuing. A number of advanced economies are growing at an above-trend rate and unemployment rates are low. Growth in China has slowed a little, with the authorities easing policy while continuing to pay close attention to the risks in the financial sector. Globally, inflation remains low, although it has increased due to both higher oil prices and some lift in wages growth. A further pick-up in inflation is expected given the tight labour markets and, in the United States, the sizeable fiscal stimulus. One ongoing uncertainty regarding the global outlook stems from the direction of international trade policy in the United States.
Financial conditions in the advanced economies remain expansionary but have tightened somewhat recently. Equity prices have declined and yields on government bonds in some economies have increased, although they remain low. There has also been a broad-based appreciation of the US dollar this year. In Australia, money-market interest rates have declined recently, after increasing earlier in the year. Standard variable mortgage rates are a little higher than a few months ago and the rates charged to new borrowers for housing are generally lower than for outstanding loans.
The Australian economy is performing well. Over the past year, GDP increased by 3.4 per cent and the unemployment rate declined to 5 per cent, the lowest in six years. The forecasts for economic growth in 2018 and 2019 have been revised up a little. The central scenario is for GDP growth to average around 3½ per cent over these two years, before slowing in 2020 due to slower growth in exports of resources. Business conditions are positive and non-mining business investment is expected to increase. Higher levels of public infrastructure investment are also supporting the economy, as is growth in resource exports. One continuing source of uncertainty is the outlook for household consumption. Growth in household income remains low, debt levels are high and some asset prices have declined. The drought has led to difficult conditions in parts of the farm sector.
Australia's terms of trade have increased over the past couple of years and have been stronger than earlier expected. This has helped boost national income. While the terms of trade are expected to decline over time, they are likely to stay at a relatively high level. The Australian dollar remains within the range that it has been in over the past two years on a trade-weighted basis, although it is currently in the lower part of that range.
The outlook for the labour market remains positive. With the economy growing above trend, a further reduction in the unemployment rate is expected to around 4¾ per cent in 2020. The vacancy rate is high and there are reports of skills shortages in some areas. Wages growth remains low, although it has picked up a little. The improvement in the economy should see some further lift in wages growth over time, although this is still expected to be a gradual process.
Inflation remains low and stable. Over the past year, CPI inflation was 1.9 per cent and, in underlying terms, inflation was 1¾ per cent. These outcomes were in line with the Bank's expectations and were influenced by declines in some administered prices due to changes in government policies. Inflation is expected to pick up over the next couple of years, with the pick-up likely to be gradual. The central scenario is for inflation to be 2¼ per cent in 2019 and a bit higher in the following year.
Conditions in the Sydney and Melbourne housing markets have continued to ease and nationwide measures of rent inflation remain low. Growth in credit extended to owner-occupiers has eased but remains robust, while demand by investors has slowed noticeably as the dynamics of the housing market have changed. Credit conditions are tighter than they have been for some time, although mortgage rates remain low and there is strong competition for borrowers of high credit quality.
The low level of interest rates is continuing to support the Australian economy. Further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual. 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."
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