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RBA ends suspense with interest rate announcement

The Reserve Bank of Australia has delivered the result of its monthly board meeting.

As expected, board members decided to leave the cash rate at a record-low 2 per cent, where it has been since May.

That was the result predicted by all 31 commentators surveyed by comparison website finder.com.au.

Many of the experts felt that it was too early for another rate cut, given that the Reserve Bank lowered the cash rate by 0.25 per cent in February and by the same amount in May.

NAB chief economist Alan Oster told finder.com.au that the Reserve Bank is “waiting to see results of previous actions”, while John Caelli from ME said employment, inflation and growth data are “sufficiently benign” to allow the Reserve Bank time to reflect.

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The big question is whether the next move in rates will be up or down. Six of the 31 survey respondents believe there will be another rate cut in 2015.

Board members are facing two conflicting pressures: to cut rates to stimulate the sluggish economy or to lift rates to cool the Sydney and Melbourne housing markets.

APRA, the prudential banking regulator, has moved to reduce investor lending and make mortgage lending more expensive for five key banks.

Both decisions are likely to slow price growth in Australia’s two biggest markets, and possibly increase the likelihood of another rate cut.

The low inflation rate also makes another rate cut possible – it is currently running at 1.5 per cent, which is below the Reserve Bank’s target band of 2-3 per cent.

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However, 19 of the 31 survey respondents expect that the next move in rates will be up. Two think it will happen in the second half of 2015, five think it will happen in the first half of 2016 and 12 think it will happen in the second half of 2015.

Westpac chief economist Bill Evans was one of 12 respondents to forecast that the cash rate would remain at 2 per cent until at least 2017.

“We are currently looking for some modest improvement in growth in 2016 back towards around 3 per cent, a level that would likely maintain steady rates,” he told finder.com.au.

RBA ends suspense with interest rate announcement
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