Published: Fri, May 10, 2019
Markets | By Otis Pena

RBA Holds Firm Ahead Of Federal Polls

RBA Holds Firm Ahead Of Federal Polls

"Given this assessment, the Board will be paying close attention to developments in the labour market at its upcoming meetings", the final paragraph of the statement from Governor, Phillip Lowe read yesterday.

Ahead of the meeting markets had priced in a roughly 50% chance that the bank could cut rates this month, leading the "Aussie" to tick higher as AUD investors unravelled their positions after the RBA voted to leave interest rates on hold again in May.

Dr Lowe welcomed reports of skills shortages in some sectors and signs of wages growth related to strong employment growth over the past year, but noted that any further rise in salaries is likely to be gradual.

Core inflation - the RBA's preferred inflation measure - came in at 1.4 per cent over the year to March. The Australian dollar rose sharply on the decision climbing to 70.45 USA cents from 70.00 US cents just before the policy announcement.

No rate cut from the Reserve Bank as it sat on its hands at the May meeting yesterday, meaning there will be no change to rates in the current federal election campaign.

"The unemployment rate has been broadly steady at around 5% over this time and is expected to remain around this level over the next year or so, before declining a little to 4.75% in 2021", he said.

Australian central bank chief Philip Lowe (picture) dashed expectations of an interest-rate cut, looking through recent weakness in inflation to hitch the policy outlook to a labour market that he said remains strong.

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The Australian dollar spiked almost half a cent against the USA dollar.

Australian economic momentum has slowed since the middle of past year and inflation has remained subdued.

The case for an interest rate cut by the Reserve Bank of Australia will be "indisputable" by August, Westpac said on Monday, but despite economic pessimism, the Australian dollar refuses to weaken below US70¢.

"The funding costs of the banks depend on the wholesale market and they sometimes like not to pass on the full RBA cut to reflect that", he says.

Last month, its targets were still 2.0 and 2.25 per cent respectively.

But there were further forecasts for a weakening of economic growth associated with a further dip in inflation and a slowing in the rate of fall of unemployment.

Therefore, the rate is still likely to be lowered over the coming months, he added. But if that looks like not happening, will the central bank cuts rates. In the February statement, the forecast was more general - "A further decline in the unemployment rate to 4¾ percent is expected over the next couple of years", The RBA said.

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