Australia c.bank holds rates; low inflation, tighter credit to prolong easy stance
* RBA keeps rates at 1.50 pct, as expected
* Acknowledges tightening credit, slowing housing market
* Upbeat about economic growth, awaits revival in inflation
By Swati Pandey
SYDNEY, Oct 2 (Reuters) - Australia's central bank marked a
26th straight month of stable policy on Tuesday, reinforcing
market bets that rates will remain low for an extended period
amid tighter credit conditions and lukewarm inflation and wages
In a widely expected move, the Reserve Bank of Australia
(RBA) ended its October board meeting with rates held at an
all-time low of 1.50 percent.
Governor Philip Lowe acknowledged credit conditions were
tighter but added that mortgage rates still remained low and
there was "strong competition" for borrowers of high credit
"Growth in credit extended to owner-occupiers remains
robust, but demand by investors has slowed noticeably as the
dynamics of the housing market have changed," Lowe said.
"Credit conditions are tighter than they have been for some
Home prices in Australia's once-booming property market have
slipped in every single month since late last year though Lowe
hasn't displayed any unease over this trend so far.
Regulatory restrictions on lending to property investors
together with greater scrutiny on banks' lending behaviour have
put a brake on skyrocketing prices.
Australian banks are under the microscope for dodgy
practices with an interim report from a powerful quasi-judicial
Royal Commission inquiry out last week trashing the reputations
of some of the country's biggest companies.
While the RBA made no mention of the Royal Commission or the
interim report in Tuesday's short policy statement, the central
bank is set to release it's biannual Financial Stability Review
The Australian dollar barely budged after the
policy decision, and was last fetching $0.7233.
"We think that the full effects of tighter credit conditions
and falling house prices have yet to be felt. That means the
labour market will tighten only slowly and inflation won’t rise
much," said Paul Dales, chief economist at Capital Economics.
"Our view is that the Bank won’t raise interest rates until
the second half of 2020."
Indeed, the most distant futures contract is for March 2020
and that has only 20 basis points of tightening priced
Lowe remained upbeat about the A$1.8 trillion economy and
has repeatedly said in recent comments that the next move in
rates is likely to be up rather than down.
Stubbornly low inflation has been a major headache for
policy makers, undershooting the RBA's 2-3 percent target band
for more than 2 years now while wage growth is crawling near
record lows at 2.1 percent.
"The low level of interest rates is continuing to support
the Australian economy," Lowe said.
"Further progress in reducing unemployment and having
inflation return to target is expected, although this progress
is likely to be gradual."
(Reporting by Swati Pandey;
Editing by Shri Navaratnam)
First Published: 2018-10-02 06:34:56
Updated 2018-10-02 07:43:32
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