Australia’s official cash interest rate is now within spitting distance of remaining unchanged for a calendar year after the Reserve Bank of Australia remained steady at today’s board meeting.
The result of the meeting means the cash rate will remain at 2%, where it has sat since the RBA board announced a 0.25% reduction at its May 2015 board meeting.
Today’s decision is likely to surprise few people, with Australian economists and analysts almost unanimously predicting no change would be made today
The current strength of the Australian dollar had been cited by some as a possible reason for the RBA to act on the cash rate, however many believe the central bank is holding back on a rate cut until it is definitely needed.
“Despite a slight increase in the unemployment rate, there are no clear signs that the Australian economy has deteriorated. This will see the Reserve Bank continue its wait and see approach,” Grant Harrod, head of real estate franchise LJ Hooker, said.
“Slower house price growth and low levels of inflation provide the Reserve Bank with enough room to cut rates should they need to stimulate growth during the first half of 2016,” Harrod said.
Shane Oliver, chief economist at AMP Capital, agreed the RBA is in “wait and see mode,” with future employment data and ongoing global economic upheaval to be closely monitored.
“Recent Reserve Bank commentary suggests a degree of comfort with the current level for the cash rate and while it retains an easing bias not enough has changed to suggest it is about to act on it,” Dr Oliver said.
“It's basically in wait and see mode regarding the jobs market and the potential impact of global financial turmoil,” he said.
While borrowers may have been wishing for the RBA to announce a rate cut in the hope it would help their back pocket, Peter Boehm, finance editor for onthehouse.com.au, said that is wishful thinking.
“There is some doubt that a drop in the Reserve Bank’s cash rate would be passed on to consumers in full through lower borrowing costs as lenders aim to shore up their balance sheets and bottom line,” Boehm said.
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