A Quick Overview Of The Australian Monetary Policy Decision

  • Sep 28, 2018 AEST
  • Team Kalkine
A Quick Overview Of The Australian Monetary Policy Decision

As per the monetary policy decision on September 4, 2018, the governor of the central bank of Australia decided to keep the rates unchanged at 1.50%. According to him, China’s growth has been witnessing a marginal downward momentum and the regulatory bodies have been deciding to ease the policy. However, they do have in mind the risks that the financial sector is exposed to. On the global basis, the inflation has been low. However, in some of the economies, the inflation has witnessed an increase and the trend might continue because of the labor markets.

As far as trade-related things are concerned, Australia seems to perform well as the positive momentum has been witnessed from the past few years on the back of higher commodity prices. However, the central bank expects that this momentum might witness a downward trend moving forward still, they would relatively be higher. The central bank is optimistic about the conditions in the labor market as the economy’s unemployment rate stood at 5.3%. According to the central bank, the inflation stands at approximately 2%.

What Impact Could Different Monetary Policies in the US and Australia Bring? 

The US Federal Reserve has raised its federal fund rate in its September 2018 meeting. The central body brought the target range to 2-2.25%, as expected by the global players and market participants. What makes Federal Reserve to do so? The strong US economy, as well as economic growth, are some of the factors which that have acted as catalysts. On the other hand, the cash rate in Australia still stands at 1.50% which is significantly low in comparison to that in the United States.

The US Federal Reserve has been maintaining its hawkish view in regard to the monetary policy since December 2015. However, the recent rate hike marks the eighth one within the time span of three years. On the other hand, the Reserve Bank of Australia or RBA has been maintaining the cash rate of 1.5% for more than 2 years. Since the time when the Reserve Bank of Australia has been looking to control inflation, this gap between the official rates of the US and of Australia is the widest.

After the recent hike by the US Federal Reserve, the official rates of the US are higher by 0.75% as compared to Australia. Moving forward, it is expected that the Australian dollar might witness the negative impacts i.e. it could depreciate against the US dollar. The reasons that RBA has not been increasing the rates could be that they are still waiting for the wage growth as well as pressures of inflation. However, the fall in the Australian dollar could help to boost the domestic economic growth.

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