Cash rate increase up in the air as RBA keeps eyes on economy

By Kay Rivera

Impeded unemployment rate will impact RBA’s future monetary policy decisions

Less than a week after the Reserve Bank of Australia decided to keep the cash rate unchanged, speculations on the possibility of delaying interest rate hikes have begun to surround the finance industry.

Credit rating agency Fitch Ratings, for instance, recently said it anticipates the central bank to leave the cash rate unmoved in 2018 and push a hike in the latter part of 2019. It noted that slow improvements in unemployment rate, steady inflation, and other factors could restrain RBA from increasing the cash rate in the near future.

“Additionally, although we expect growth to ease to 2.5% in 2019 from 3% in 2018, the still resilient growth outlook should be supportive of job creation over the economy,” Fitch stated.

“As such, we believe that the RBA will be able to raise its cash rate by 25 [basis points] to 1.75% by end-2019.”

Mortgage Business reported on Friday, though, that Fitch acknowledged that the forecast may be affected by market conditions.

“On the upside, a spike in global oil prices as a result of the US-directed Iranian sanctions and supply concerns in Venezuela could lead to an acceleration in inflation, forcing the RBA to hike rates at a faster pace to curb inflationary pressures,” the agency said.

“On the downside, the RBA continues to note that wage growth remains low and may want to see stronger signs of wage growth even after unemployment declines towards 5.%. This could see the central bank delay hiking rates to support the economy so as to achieve higher wage growth.”

Finally, it was mentioned that US-China trade issues could also play a part in the decision-making. If tensions worsen, Chinese demand for Australian exports may increase. This could burden economic growth, and consequently, result in the central bank keeping the rates steady for a longer period of time.

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