Trade dispute negatively impacting economy: RBA

By Eliot Hastie
 — 1 minute read

The Reserve Bank has revealed that the escalation of the trade and technology dispute had increased the downside risk to the global growth outlook, which was a factor in the latest interest rate hold. 

The RBA chose to hold the official cash rate at 1.00 per cent, a historic low, in its August meeting but has now revealed the minutes from that meeting. 

“Uncertainty around trade policy had already had a negative effect on investment in many economies. Members noted that, against this backdrop, the low inflation outcomes in many economies provided central banks with scope to ease monetary policy further if required,” said the RBA. 


Other central banks had reduced interest rates, and more were expected noted the RBA but overall financial conditions were still accommodative despite downward trends. 

“Long-term government bond yields had declined further and were at record lows in many economies, including Australia. Borrowing rates for both households and businesses were also at historically low levels and there was strong competition for borrowers of high credit quality,” said the RBA. 

The dollar had depreciated to its lowest level in recent times and growth was slower than expected in the first half of the year but it was expected to pick back up to three per cent over 2021. 

“Overall, the domestic risks to the forecast for output growth appeared to be tilted to the downside in the near term, but were more balanced later in the forecast period,” said the RBA. 

Employment growth had been strong and labour force was at a record high despite unemployment increasing also. 

“Wages growth had been subdued and there were few signs of wage pressures building in the economy. Combined with the reassessment of spare capacity in the labour market, this had led to a more subdued outlook for wages growth than three months earlier,” said the RBA. 

Despite these fluctuating outlooks the RBA members deemed it appropriate to leave monetary policy where it was. 

The period of lower rates would continue as Australia made more progress toward full employment and inflation target. 

However the board said it needed to assess developments in both the domestic and global market before making any monetary changes. 

“Members would consider a further easing of monetary policy if the accumulation of additional evidence suggested this was needed to support sustainable growth in the economy and the achievement of the inflation target over time,” said the RBA.


Trade dispute negatively impacting economy: RBA
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