Interest Rate Update – February 2018

Cash Rate – No change

The Reserve Bank of Australia (RBA) has just announced it will maintain the official cash rate at 1.50%.

The last half of 2017 and the commencement of the new year has seen an improvement in our domestic economic and employment growth. We have seen more buoyant business conditions, strong non-mining investment and increased business and consumer confidence.

However, with the headline inflation at 1.9% (below the RBA’s target range of 2.0% – 3.0%) and wages growth remaining low, the RBA is comfortable to retain the Cash Rate at current levels.  The recent strengthening of the Australian dollar to over US80c, albeit on the back of a weaker US dollar, is another reason why we do not expect any change to the Cash Rate until well into 2018.

Inflation in the US also remains low but investors have interpreted Friday’s employment figures, which have shown US wages rising at strongest rate since June 2009, as evidence the US economy is heating up. This has influenced higher bond yields and, together with concerns of rising inflation, has caused today’s large global sell-off in stocks.  2018 will certainly be a dynamic year.

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