RBA upbeat on economy Cash rate unchanged as growth in GDP forecast

SOME positive signs in the global and Australian economies drove the decision to keep interest rates on hold, the Reserve Bank said.

The minutes of the most recent RBA board meeting, which led to the cash rate being unchanged at 0.75 per cent, showed members were upbeat about the global economy.

“The easing in trade tensions between the US and China, and ongoing stimulus delivered by central banks, had supported a modest improvement in the growth outlook for a number of economies,” the minutes said.

While the coronavirus was a new source of uncertainty, it was too early to tell what sort of impact it would have on the Chinese and global economies.

“It was noted that previous outbreaks of new viruses had had significant but short-lived negative effects on economic growth in the economies at the centre of the outbreak.

“Some commodity prices, notably for industrial metals, iron ore and oil, had fallen on concerns that the coronavirus outbreak would disrupt production in China and reduce Chinese commodity demand in the near term. By contrast, rural prices had been little changed.”

Following modest growth in the September quarter, the domestic economy is expected to be “weaker in the near term than had been forecast three months earlier” on the back of the bushfires and coronavirus outbreak.

“However, GDP growth was still expected to pick up over the forecast period, supported by accommodative monetary policy, a pick-up in mining investment, and recoveries in dwelling investment and consumption.”

The bushfire recovery is expected to add to growth in the second half of 2020. The central forecast for growth remained unchanged since November, at 2.75 per cent over 2020 and around three per cent over 2021.

Looking ahead, the RBA sees growth in consumption increasing gradually, sustained by moderate growth in household disposable income and the recovery in the housing market.

Growth in housing prices has picked up in most capital cities and parts of regional Australia.

The unemployment rate was expected to remain in the five to 5.25 per cent range for some time before declining to around 4.75 per cent in 2021, as GDP and employment growth picks up.

Wages growth is expected to be largely unchanged over the following couple of years, the RBA said.