RBA keeps Interest Rates at Record Low
In line with expectations, the reserve bank of Australia held interest rates at a record low of 0.1% amid rising housing prices. In the policy statement, Lowe said the economy was recovering more quickly from the coronavirus pandemic than had been expected, partially driven by very low-interest rates and government support. The statement also acknowledged that the jobs market was also improving faster than forecast. Despite that, inflation and wage pressures remained subdued.
House prices were the main concern about the current economic situation. The national housing market witnessed a 2.2% rise in May following a rise of 1.8% in April and a 32-year record rise of 2.8% back in March.
However, Reserve Bank of Australia Deputy Governor Guy Debelle stated in a podcast later that a hot property market fueled by emergency-low interest rates has “distributional consequences”, saying that monetary policy isn’t the right tool to be used for cooling housing prices.
Australia’s economy has shown a rapid recovery, recoupling all of its Covid-19 losses in the first quarter, and unemployment has fallen to 5.5% from a pandemic peak of 7.4%. This could suggest the RBA might seek to taper its QE purchases in the next meetings.
Separate data reported that the Australian economy expanded by 1.8% in the first quarter fueled by a big surge in private investment and housing. The back-to-back quarterly growth pushed annual output to climb by 1.1%.
PMIs data confirm US Economic Strength
The US manufacturing sector grew faster than expected in May, with the overall economy notching a 12th consecutive month of growth. ISM Manufacturing PMI index rose to 61.2 from 60.7 beating consensus at 61.0. Details revealed that the sector’s production dropped from 62.5 to 58.5, with the slower output growth likely reflecting supply chain strains holding back output, rather than any moderation in demand. While new orders rose from 64.3 to 67.0 and supplier delivery times rose to their highest since 1974.
ISM Services index climbed to a record high 64.0 points in May, from 62.7 in April and beating expectations at 63.0. Activity in the services sector grew in May for the 12th month in a row. The Services PMI reached another all-time high in May. The rise in the services index partly reflected a jump in the survey’s measure of supplier deliveries to a reading of 70.4 from 66.1 in April. Official data reported that all 18 services industries reported growth, the rate of expansion is very strong, as businesses have reopened and production capacity has increased. While some capacity constraints, material shortages, weather-related delays, and challenges in logistics and employment resources continue.
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