May 2016
Teacher and Student Guide
Monetary Policy and Recent
Economic Developments
Reserve Bank of Australia
Responsible for:
•
Monetary policy and market operations
•
Payments system stability & efficiency
•
Financial system stability
•
Issuing Australia’s currency notes
•
Banker to the government
•
Managing foreign exchange reserves
The objectives specified in the Reserve Bank Act (1959) are:
•
Stability of the currency
•
Maintenance of full employment
•
Economic prosperity and welfare of the people of Australia
Reserve Bank Board
•
Responsible for monetary and banking policy
•
Nine members: Governor, Deputy Governor, Secretary to the Treasury,
and six external members
•
Meets first Tuesday, except January
How the RBA achieves its objectives
•
Inflation targeting regime since 1993, agreed with the government since
1996, and which was most recently updated in 2013
•
Objective is to keep annual inflation between 2 and 3 per cent,
on average, over the cycle
•
CPI inflation is the target, but underlying measures – which abstract
from temporary large price increases and decreases – help show
future trends in ‘headline’ inflation
•
RBA sets the policy interest rate (termed the cash rate – the rate
banks charge each other for overnight funds)
•
The RBA uses liquidity operations (altering the supply of overnight funds)
to ensure the cash rate remains at target
•
Changes in the cash rate affect private mortgage and other lending and
deposit rates that, along with any exchange rate response, affect the
amount of private consumption and investment spending
•
Inflation will remain steady and low when total spending is kept close to
the level of potential output over time
Cash Rate*
%
%
7
7
6
6
5
5
4
4
3
3
2
2
1
2000
1
*
2004
2008
2012
2016
Data from June 2016 onwards are expectations derived from interbank
cash rate futures
Sources: ASX; Bloomberg
Consumer Price Inflation
%
%
5
5
Year-ended
4
4
3
3
2
2
1
1
0
0
Quarterly
(seasonally adjusted)
-1
2004
Source:
ABS
2008
2012
-1
2016
Measures of Underlying Inflation
Year-ended
%
%
5
5
Weighted median
4
4
3
3
Trimmed mean
2
2
Trimmed mean
(quarterly)
1
1
0
2004
Source:
ABS
2008
2012
0
2016
Non-tradables and Tradables Inflation*
%
%
Non-tradables**
4
4
Excluding utilities
2
0
2
0
%
1996
2001 Tradables***
2006
2011
4
%
2016
4
Year-ended
2
2
0
0
Quarterly
(seasonally adjusted)
-2
1996
*
**
2001
2006
2011
Adjusted for the tax changes of 1999–2000
Excluding interest charges prior to the September quarter 1998 and
deposit & loan facilities to June quarter 2011
*** Excluding volatile items (fruit, vegetables and automotive fuel) and
tobacco
Sources: ABS; RBA
-2
2016
Labour Costs
Year-ended growth
%
%
Wage price index
4.5
4.5
Other states
3.0
3.0
WA and Qld
1.5
1.5
%
%
Average earnings per hour
10
10
5
5
0
0
-5
-5
1995
1999
Sources: ABS; RBA
2003
2007
2011
2015
Trimmed Mean Inflation Forecast*
Year-ended
%
%
3
3
90 per cent interval
2
2
1
1
70 per cent interval
0
0
2013
2014
2015
2016
2017
Confidence intervals reflect RBA forecast errors since 1993
*
Sources: ABS; RBA
2018
Labour Market
%
%
7
65
Participation rate
6
64
Employment to working-age
population ratio
5
63
Unemployment rate
4
62
3
61
2
60
2008
Source:
2012
ABS
2016
2008
2012
2016
Unemployment Rate Forecast*
Quarterly
%
%
90 per cent interval
7
7
5
5
70 per cent interval
3
1998
2002
2006
2010
2014
Confidence intervals reflect RBA forecast errors since 1993
*
Sources: ABS; RBA
3
2018
GDP Growth
%
%
Year-ended
4
4
2
2
0
0
Quarterly
-2
-2
1999
Source:
2003
ABS
2007
2011
2015
State Final Demand
Year-ended growth
%
%
WA and Qld
10
10
5
5
0
0
Rest of Australia
-5
1999
-5
2003
Sources: ABS; RBA
2007
2011
2015
Household Income, Consumption and Wealth*
%
%
Real, year-ended growth
10
10
Consumption
5
5
0
0
Disposable income
%
%
Saving ratio
10
10
5
5
0
0
%
%
Net wealth**
650
650
550
550
450
450
350
350
1990
*
1995
2000
2005
2010
2015
Household sector includes unincorporated enterprises; disposable
income is after tax and interest payments; income level smoothed with
a two-quarter moving average between March quarter 2000 and March
quarter 2002; saving ratio is net of depreciation
** Per cent of annual household disposable income, before the deduction
of interest payments
Sources: ABS; RBA
Private Residential Building Approvals
Monthly
’000
’000
18
18
Total*
15
15
12
12
Detached
9
9
6
6
Higher-density*
3
3
0
0
2008
2010
2012
*
Smoothed lines are ABS trends
Source: ABS
2014
2016
Employment and
Non-mining Business Investment
m
Business investment*
Employment
$b
Current prices
NSW
3
45
Vic
Qld
2
30
WA
1
15
0
0
2006
2011
2016 2006
*
Refer to footnote 1 in the text
Sources: ABS; RBA
2011
2016
GDP Growth Forecast*
Year-ended
%
%
90 per cent interval
4
4
2
2
70 per cent interval
0
0
2013
2014
2015
2016
2017
*
Confidence intervals reflect RBA forecast errors since 1993
Sources: ABS; RBA
2018
Housing Price Growth
Six-month-ended annualised
%
%
20
20
15
15
10
10
5
5
0
0
-5
-5
-10
-10
2004
2007
Sources: CoreLogic RP Data; RBA
2010
2013
2016
Housing Credit Growth*
Year-ended
%
%
8
8
Housing credit
7
7
6
6
5
5
Net housing debt
4
4
3
3
2010
2012
*
Seasonally and break adjusted
Sources: ABS; APRA; RBA
2014
2016
Australia’s Trading Partner Growth*
Year-average
%
RBA forecast
%
6
6
4
4
2
2
0
0
-2
1981
1987
1993
1999
2005
*
Aggregated using total export shares
Sources: ABS; CEIC Data; RBA; Thomson Reuters
2011
-2
2017
China – Activity Indicators
Year-ended growth
%
GDP by sector
%
Retail sales
Tertiary
15
20
Secondary
Nominal
10
15
Real
5
10
Primary
0
5
2008
2012
Sources: CEIC Data; RBA
2016
2008
2012
2016
Chinese Steel and Iron Ore Spot Prices
US$/t
US$/t
200
800
Chinese steel*
(RHS)
150
600
100
400
Iron ore**
(LHS, fines)
50
200
0
0
2008
2010
2012
2014
*
Average of hot rolled steel sheet and steel rebar prices
** Free on board basis
Sources: Bloomberg; RBA
2016
Terms of Trade
2013/14 average = 100, log scale
index
Forecast
index
120
120
100
100
80
80
60
60
40
40
2018
1978
Sources: ABS; RBA
1988
1998
2008
Major Advanced Economies –
GDP Growth
%
United States % %
(LHS)
%%
Euro area
(LHS)
%
Japan
(RHS)
Year-ended
3
33
63
6
0
00
00
0
-3 -3
-6 -3
-6
Quarterly
-3
-6
2009
Source:
-6 -6
2016
2009
Thomson Reuters
-12 -6
2016
2009
-12
2016
Major Advanced Economies – Inflation
Year-ended
%
United States*
Euro area
%
Japan**
4
4
Headline
2
2
0
0
Core
-2
-4
-2
-4
2009
2016
2009
2016
2009
*
Personal consumption expenditures (PCE) inflation
** Excluding the effects of the consumption tax increase in April 2014
Sources: RBA; Thomson Reuters
2016
Australian Dollar
US$
index
US$ per A$
(RHS)
80
1.00
70
0.80
TWI
(LHS)
60
0.60
50
0.40
2008
2010
Sources: Bloomberg; RBA
2012
2014
2016
For more information
Visit the Reserve Bank website:
•
Chart Pack
•
Education
•
Statistics
(updated monthly)