The Reserve Bank of Australia (RBA) left cash rates unchanged in March 2019. It has been just over two and half years since the last rate change in August 2016, lowering from 1.75 per cent to the current rate of 1.5 per cent. Looking at the language used in the minutes of the most recent RBA monetary policy meeting, we can start to understand the reasons behind their decision and what their plan might be for the rest of 2019.
So why haven’t the RBA changed the cash rates?
The RBA’s decision on the monthly cash rate results are based on global and domestic economic environments. The rising tensions in global trade coupled with a slowing Chinese economy have affected investment decisions. Despite a positive domestic economic environment, the low growth in household income and declining house prices in some cities have created some uncertainty.
Although the overall Australian unemployment at its lowest level in over six years (currently at 5 per cent) and strong population growth (currently at 1.6 per cent per annum), business sentiment is weakening. According to the ANZ/Property Council Survey forecast for the March 2019 quarter, despite levels remaining elevated, growth expectations for staffing and forward working schedules is slowing.
The ANZ/Property Council Survey also found that access to debt finance would be increasingly difficult over the next 12 months. This sentiment was reinforced by the recent Australian Bureau of Statistics (ABS) results on Lending to Households and Businesses. Lending to households and businesses fell by 15.0 per cent and 6.2 per cent respectively over the 2018 calendar year. The RBA noted the demand for credit by both owner-occupiers and investors has slowed in their statement.
Due to current uncertainties in the global and domestic markets, the RBA have concluded that holding the cash rate steady over the near term would be the most appropriate action.