Australia holds cash rate

by NZ Adviser06 Apr 2016
A stabilising economy has seen the Reserve Bank of Australia (RBA) leave the official cash rate on hold at 2% yesterday. 

Thirty-four of 35 leading economists and analysts (97%) in the Reserve Bank Survey expected the cash rate to remain unchanged. 

John Flavell, the chief executive of Mortgage Choice says recent positive economic data would have pleased the RBA board and influenced its decision to keep the official interest rate on hold.

“The Australian economy is tracking along quite well at present. Property prices across the combined capital cities continue to rise slightly month on month, unemployment remains relatively stable as does both consumer and business sentiment.

“With that said, it was all but certain that the Reserve Bank of Australia would choose to leave the official cash on hold.” 

Moving forward, Flavell said he expects the cash rate to stay steady for some time.

“Indeed, all of the data points would strongly suggest there is no trigger for a rate cut or rate hike. And, while several economists were predicting a May rate cut at the beginning of the year, this now seems unlikely.”

RBA governor Glenn Stevens said in a statement following the central bank's meeting yesterday, low inflation would facilitate another rate cut if that were necessary.

"Continued low inflation would provide scope for easier policy, should that be appropriate to lend support to demand," Stevens said.

“Inflation is quite low. Recent information has confirmed that growth in labour costs remains quite subdued. Given this, and with inflation also restrained elsewhere in the world, inflation in Australia is likely to remain low over the next year or two. 

“Given these conditions, it is appropriate for monetary policy to be accommodative. Low interest rates are supporting demand, while supervisory measures are working to emphasise prudent lending standards and so to contain risks in the housing market. Credit growth to households continues at a moderate pace, albeit with a changed composition between investors and owner-occupiers. The pace of growth in dwelling prices has moderated in Melbourne and Sydney and has remained mostly subdued in other cities.”

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