RBA reaches June cash rate decision

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In a move that is unlikely to surprise many, yesterday's Reserve Bank of Australia (RBA) board meeting has ended with no change to the official cash rate.

While many economists believe the cash rate will fall below its current mark of 1.75%, common opinion is that the RBA will wait until later this year before making another move to give it time to assess the impact of the 0.25% reduction it surprised many with in May.

Participating in the latest RBA survey from Finder, Chris Schade, senior business analyst with non-major lender MyState, believes a rate cut is more likely in August as the RBA tracks economic conditions in Australia and overseas.

“There's no urgent need to deliver another cut to the Australian economy with the Australian dollar weaker, the economy going OK and May's cut requiring some time to work through the economy,” Schade said.

“It is more likely the RBA will take some time to see how the Australian economy and global conditions develop over the coming months before making any further changes to the cash rate,” he said.

While many are tipping a rate cut in the near future, CoreLogic research head Tim Lawlaess said the RBA is set to face tough decisions in future months as it looks to balance inflation targets with the prospect of renewed capital growth trends in Australian real estate

“If the June quarter inflation data, which is out a week before the RBA’s August board meeting, provides another weak reading, the chances of a rate cut in August are high,” Lawless said.  

“The turnaround in the pace of capital gains across the housing sector is likely to be a concern for the RBA.  CoreLogic reported a 1.6% rise in capital city home values last week, following a 1.7% rise in April,” he said

“The stronger housing market conditions have been enough to reinflate the trend rate of growth which is something the RBA and the banking sector regulators are likely to be keeping a close eye on.”

Given inflation is at currently at a record low, Lawless believes it would win out over any concerns about additional rate cuts refuelling house price growth, which could mean regulators may have to again step in if the RBA was to announce a cut in the coming months.

“Strong housing market conditions probably wouldn’t be enough to block a further rate cut, however, if the renewed growth trend continues, there is the potential for a further regulatory response that could cool housing market demand while at the same time allowing monetary policy to stimulate the broader economy,” he said.

Today’s decision to leave the rate on hold means it will be more than four years since the RBA has announced consecutive monthly cuts, with the last back-to-back cuts last coming in May and June of 2012.

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