On 6 September 2016 the Reserve Bank of Australia (RBA) decided to leave the cash rate unchanged at 1.50 per cent, after cutting official interest rates by 25 basis points to 1.50 per cent on 4 August 2016. In making this decision, the Governor said that holding the stance of monetary policy at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time, after cutting the cash rate at both the May and August meetings.
At the public hearing on 22 September 2016 the Governor stated that the Australian economy is continuing to transition out of the mining boom, with growth in the non-mining sectors of the economy being supported by flexibility in the exchange rate and accommodative monetary policy. The RBA forecasts that year-ended GDP growth will be around 2½ to 3½ per cent over the year to December 2016, increasing to around 3 to 4 per cent by December 2018. The Governor remarked that growth in the economy has been better than expected, due in part to an expansion in resource exports in recent months.
The unemployment rate has remained around half a per cent lower than a year ago, and the RBA suggests that employment growth will continue at a modest pace with little change in the unemployment rate. Employment growth has been slower this year following a period of strong growth in late 2015, and recent gains in employment have been concentrated in part-time employment. Inflation remains very low, with the CPI expected to rise by half a percentage point to 1½ per cent by December 2016, and to 1½-2½ by June 2017.
While the Australian dollar has appreciated by around 10 per cent against the US dollar, and was 8 per cent higher on a TWI basis than its low point in September 2015, the Australian dollar remains 20 per cent lower against the US dollar and about 12 per cent lower on a TWI basis than its peak in the middle of 2014. The RBA has noted that, at its current level, the Australian dollar is supporting demand for local goods and services, with more Australians choosing to holiday domestically, and more international students choosing to study in Australia.
On behalf of the committee, I thank the new Governor of the Reserve Bank, Dr Philip Lowe and other representatives of the RBA for appearing at the hearing on 22 September 2016, and congratulate Dr Lowe on his appointment to this important role.
I would also like to take this opportunity to congratulate and thank the outgoing Governor, Mr Glenn Stevens, on his 10 years of service to the Reserve Bank.
David Coleman MP
Chair