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Political uncertainty keeps rates on hold

An unresolved federal election and the unknown impacts of Brexit were believed to be the main drivers of the Reserve Bank’s decision to keep the official cash rate on hold.

1300HomeLoan managing director John Kolenda said the decision at yesterday’s monthly board meeting to leave the cash rate unchanged at 1.75 per cent had been expected given the fact that there was “too much to digest to cut rates now”.

“The prospects of a hung parliament in Australia and the continuing turmoil from Brexit left the RBA with little choice but to keep official rates on hold,” Mr Kolenda said.

“The RBA has too much on its plate at the moment but further easing of the cash rate remains a possibility in the months ahead.”

Laing+Simmons managing director Leanne Pilkington agreed that there were too many unknowns for the RBA to justify a rate cut yesterday. However, she said this did not mean a cut in the coming months was off the table.

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“The Reserve Bank was always expected to stay the course [this month], given the broader economic volatility,” Ms Pilkington said.

“However, the full extent of the Brexit shock and the associated uncertainty in global markets has not yet been determined, particularly in a domestic sense.

“Continued flat income growth and low inflation could see the RBA pull the trigger on another rate cut sooner rather than later.”

Firstmac chief financial officer James Austin echoed this sentiment, saying the RBA’s decision suggested it was choosing to wait for more data, including domestic inflation figures, before deciding on whether further rate reductions are required.

“A rate cut in August in increasingly likely but will ultimately be determined by inflation data due out later in July,” Mr Austin said.

“A RBA cut in August will be good news for home owners.”

[Related: Brexit had 'little impact' on Australian confidence]

Political uncertainty keeps rates on hold
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