You are here

Australia's central bank holds rates at record lows, signals patience on policy

[SYDNEY] Australia's central bank held rates at a record low 1.50 per cent on Tuesday and signalled it was in no rush to follow global policymakers in tightening as it wrestles with weak inflation and a strong currency.

The Reserve Bank of Australia (RBA) expressed concerns over snail-paced wages growth and the lofty Australian dollar, which is adding to subdued price pressures in the economy.

"It is weighing on the outlook for output and employment,"RBA Governor Philip Lowe said in the monthly policy statement. "An appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast."

The Aussie duly slipped 0.4 per cent to US$0.7792, the lowest in 2-1/2 months. The currency has surged more than 8 per cent since the start of the year when it held around US$0.7200.

The RBA last cut official rates in August 2016 to head off the danger of deflation. Still, consumer prices have stayed tepid and below its target band of 2-3 per cent.

Your feedback is important to us

Tell us what you think. Email us at

Yet policymakers are not in favour of further stimulus with household debt at an all-time peak of 190 per cent of disposable income, and rising at a faster pace than wages growth.

The RBA is worried that such high level of indebtedness could hurt economy-wide spending. As a result, it remains in no hurry to push rates higher.

Speaking just last month, Mr Lowe insisted rates were on hold for a while yet.

Indeed, the futures market sees only a small chance of a rate hike early next year, with a 25-basis-point increase fully priced in by mid-2018. That would be the first rise in official cash rates since November 2010.

Mr Lowe said then while were was little doubt about the direction of policy, there were questions about when such a move would occur.

"It's more likely interest rates will go up and, although not for some time, people should prepare for higher interest rates," he told a conference in Perth. "In my view, that would be a positive development for the economy."


BT is now on Telegram!

For daily updates on weekdays and specially selected content for the weekend. Subscribe to