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Reserve Bank of Australia holds rates steady as growth outlook decelerates


Reserve Bank of Australia holds rates steady as growth outlook decelerates

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Photo: Reuters

Australia’s central bankers meet to review monetary policy settings today amid an increasingly gloomy economic outlook.

At 27 years and counting, Australia holds the enviable record of the longest run of consistent economic growth. While analysts are not expecting that record run to collapse soon, the economy has certainly slowed in the last 12 months.

Reserve Bank Governor Philip Lowe has expressed concern about low wage growth, which is putting pressure on household spending—60% of all spending in Australia.

Property prices are also in the spotlight. While national prices rose almost 50% between 2012 and 2017, levels in the largest cities of Sydney and Melbourne have fallen 11.5% in the past year alone. This is despite strong population growth and low interest rates, prompting the central bank to label the development a “significant area of uncertainty”.

Meanwhile, the opposition Labor Party—widely expected to win the upcoming election—has pledged to scrap tax write-offs for property investors, which is likely to reduce demand and thus prices.

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Regardless, Australia’s central bank is expected to hold rates at 1.5% today. However, the Reserve Bank recently moved to a neutral policy stance from an “expect-a-hike” stance. This could move towards a rate cut should the property market soften substantially in the coming months.

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