RBA Leaves Interest Rate Unchanged At Historic Low

The Reserve Bank of Australia on Tuesday decided to keep its benchmark interest rate unchanged, but cited that global trade tensions and household indebtedness posed risks to the growth outlook.

The board of the Reserve Bank of Australia, governed by Philip Lowe, voted to maintain the cash rate at 1.50 percent. The interest rate has remained at the current level since August 2016.

"Taking account of the available information, the Board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time," the bank said in a statement.

The RBA noted that the low level of interest rates is continuing to support the Australian economy.

Policymakers expect further progress in the reduction of unemployment and inflation returning to target, although this progress is likely to be gradual.

The central bank said it still expects the Australian economy to grow by around 3 percent this year, reflected by rising business investment, higher levels of spending on public infrastructure and increased employment.

Underlying inflation is forecast to pick up over the next couple of years, although the acceleration is likely to be gradual and could take a little longer than earlier expected. The central bank retained its forecast for underlying inflation at 2 percent for this year and 2.25 percent for 2020.

The RBA said that the housing markets in Sydney and Melbourne are experiencing a period of adjustment, after an earlier large run-up in prices. Housing conditions remained soft in both markets and rent inflation continued to be low.

Growth in credit extended to owner-occupiers has eased and the demand by investors has slowed noticeably due to changing dynamics of the housing market, it added.

The RBA statement sounded more optimistic on the outlook for the Australian economy, Ben Udy, an economist at Capital Economics, said.

Udy suggested that the housing downturn, a tightening in credit conditions and a softening global outlook could weigh on the Australian economy in 2019, triggering a slowdown in GDP growth to 2.0 percent this year and prevent underlying inflation from gaining much momentum.

The economist expects the RBA to rethink its optimistic outlook and cut rates before the end of the year when the outlook softens.