[HSC] Economist: 6–12 August
The week in review.
The main highlight this week was the RBA deciding to leave the cash rate unchanged at 1.50 per cent, where it has been since August 2016. Later in the week, the RBA published their quarterly Statement on Monetary Policy, which provided an update to their key inflation and GDP forecasts.
1. Monetary Policy
Announcement that the Board decided to leave the cash rate unchanged at 1.50 per cent.www.rba.gov.au
It has now been two years since Australia went through a rate change.www.smh.com.au
On the third of August 2016, the Reserve Bank Board decided to lower the cash by 25 basis points to the historical low of 1.50 per cent. It has been more than two years since that day, but the cash rate remains at 1.50 per cent, with no signs of it being raised any time soon. A variety of domestic and global factors contributed to this month’s decision to leave the cash rate unchanged.
Domestically, continuing strong employment growth is expected, which should maintain real GDP growth just above three per cent for 2018 and 2019. The RBA expects headline inflation to fall to 1.75% in the September quarter before increasing gradually throughout 2019 and 2020. The two key areas of concern emanating from the domestic economy are weak household consumption and declining property prices. Household consumption has been constrained for some time due to stagnant wages growth and high debt levels. House prices soared from 2013 to 2017, placing upward pressure on the cash rate, however, they have now begun to fall, reducing the need for the RBA to raise the cash rate.
The main source of global uncertainty remains the United States’ trade policy under President Trump, with this week’s attack on Turkey just the latest in a series of protectionist measures he has authorised in recent months.
A disruption to global trade flows would be very harmful to the Australian economy and consequently,
“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 cash rate has now been at the historical low of 1.50 per cent for over two years. This is substantially below the estimated neutral rate of 3.50 per cent.
- The downward trend in house prices is contrary to the effects that would be expected through the ‘asset prices and wealth channel’ of the transmission mechanism of monetary policy. This indicates the role of other factors such as enhanced prudential supervision and restrictions on foreign investment.
2. Elsewhere around the Globe
- A rapid rise in imports caused China’s trade surplus to fall substantially in July to $US28.05 billion, whilst inflation increased from 1.9% to 2.1%.
- Preliminary estimates put second quarter annualised economic growth in Japan at 1.9%, compared to the 0.9% (annualised) contraction that took place in the first quarter.
- Meanwhile, preliminary estimates of growth in the UK returned a 1.3% figure. This news was accompanied by BOGS deficit of £1.861 billion for the month of June.
- In the United States, underlying inflation increased to 2.4% in July, whilst headline inflation remained steady at 2.9%.
The retail trade data released last week was just the latest disappointment in the search for positive signs of…www.theguardian.com
Updated August 08, 2018 14:45:48 Reserve Bank governor Philip Lowe has backed Australia's immigration-driven population…www.abc.net.au
A quarter of Australian households have less than $1000 in savings and one in 10 are spending all their income and more…www.smh.com.au
The US economy continues to expand at a strong pace with relatively moderate inflation pressures, a key reason why the…www.smh.com.au
Sydney's bubbly house prices are sinking and tipped to fall for at least another year, pushing the central bank even…www.smh.com.au
We won't know for sure who the 25 millionth Aussie will be, but late on Tuesday night, the nation's official population…www.smh.com.au
What's driving our growth is increased immigration, of course. Over recent times, net overseas migration has added…www.smh.com.au
Inflation will remain stuck at the low end of the Reserve Bank's target range until at least the end of 2020, and even…www.smh.com.au
We're in danger of more price volatility and significant power outages if the National Energy Guarantee doesn't get…www.smh.com.au
"No good purpose is served by making one element of the package hostage to the other. An agreement as quickly as…www.smh.com.au
Posted August 11, 2018 11:57:04 Turkey says doubled tariffs on Turkish steel and aluminium announced by US President…www.abc.net.au
Updated August 10, 2018 17:00:27 The Reserve Bank has forecast strong economic growth for Australia in 2018 and 2019…www.abc.net.au
Over the past five years one of the major issues in the Australian economy has been the rise of underemployment given…www.theguardian.com
ISTANBUL - A worsening dispute between the United States and Turkey reverberated through the global economy on Friday…www.nytimes.com
Updated August 07, 2018 16:18:20 The Reserve Bank has rolled its emergency low interest rate setting into a second…www.abc.net.au
This series of weekly articles aims to compile the important economic news of the week into bite-sized summaries with HSC-specific takeaways.
You can expect a new article every Sunday at 6pm!