Expected Call By RBA – Rates on Hold

By Matthew Brown

The Reserve Bank of Australia just announced the Cash Rate Target will remain at 2.00%. This outcome was largely expected.

The pertinent points in the RBA’s accompanying statement were:

  • Cash Rate target unchanged at 2.0%
  • Global economy is expanding at a moderate pace
  • Prospects for economy firmed in recent months
  • Inflation outlook may afford scope for further easing
  • Key commodity prices are much lower than a year ago
  • AUD$ adjusting to significant declines in commodity prices
  • US Federal Reserve expected to start increasing interest rates
  • Volatility in financial markets has abated
  • Growth in lending to property investors has eased
  • Pace of house price growth has moderated
  • Australia economy expanding moderating in face of mining investment decline
  • Business surveys suggest gradual improvement in non-mining conditions
  • Inflation low, should remain so
  • GDP growth has been somewhat below longer-term averages for some time
  • Mortgage rate hikes will offset rate support slightly
  • Outlook for inflation may afford scope for further easing of policy (ie interest rates)

At various times during 2015 there has been talk of the RBA cutting rates to further stimulate the economy or increase rates to cool the Sydney and Melbourne property markets. In hindsight the RBA doing nothing was the right move, rates have remained on hold since May 2015 whilst new capital adequacy requirements on Australian Banks were implemented by APRA, forcing lenders to first increase investment lending then raising all housing loans has slowed both these property markets.

All 33 economists and commentators surveyed by comparison website finder.com.au correctly predicted todays result.

Glen Stevens, RBA Governor, has commented recently that he was prepared to ‘chill out’ on cash rate cuts. This was further reinforced today

“In Australia, the available information suggests that moderate expansion in the economy continues in the face of a large decline in capital spending in the mining sector… Low interest rates are acting to support borrowing and spending.”

Finally, Mr Stevens added, “At today’s meeting the Board again judged that the prospects for an improvement in economic conditions had firmed a little over recent months and that leaving the cash rate unchanged was appropriate. Members also observed that the outlook for inflation may afford scope for further easing of policy, should that be appropriate to lend support to demand.” This is all good news for Australian borrowers and has set the tone for continued low interest rates into 2016. Retirees are still going to be hunting for YIELD outside of fixed interest and high interest saver account for years into the future. Investors and Retirees will continue to seek high dividend yielding stocks.

The local share market (S&P/ASX200) continues to climb higher following this positive news up 98.7 points, 1.87 percent.

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