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Australia

St George predicts interest rates to hold until 2019

Upon analysis of the Reserve Bank of Australia (RBA) February board meeting, St George expects the RBA will leave interest rates steady for the remainder of 2018, as reported in their latest Interest Rate Outlook.

 

The statement was broadly positive and indicates there is increasing confidence in the Australian economy from the RBA, especially in comparison to the end of 2017. St George believes the factors that will determine the RBA’s next move will be related to receptiveness of inflation and wage pressures to strength of the labour market.

 

Some highlights included:

  • Continued positivity for business investment, noting that “prospects for private non-mining investment were more positive than they had been for some time”.
  • With regards to the labour market, the board noted that “uncertainty remained about how employers would respond as spare capacity in the labour market diminished. Indeed, it was possible that ongoing strength in the demand for labour might result in wage growth picking up by more than anticipated, both in Australia and abroad”.
  •  Increased optimism in the worldwide economy as the 2017 global GDP growth had exceeded predictions of most analysts. The RBA board minutes document that global growth could “continue to surprise on the upside, given the synchronised nature of the current upturn”.

One of the concerns raised was weak growth in household income, which St George concur that household consumption could be a key risk for domestic growth.

 

While concerns were noted, St George is satisfied the meeting was one with an overall positive outlook. 

 

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