RBA leaves cash rate unchanged for March

RBA leaves cash rate unchanged for March

Posted on Tuesday, March 03 2015 at 1:51 PM

In a move many industry experts had been predicting, the Reserve Bank of Australia (RBA) announced today that it will not be amending the cash rate, so it still stands at 2.25 per cent.

It was felt by many that the
RBA would wait at least a month to see what effect the February cuts had had.

Governor Glenn Stevens said
in his statement: “The available
information suggests that growth is continuing at a below-trend pace, with
domestic demand growth overall quite weak. As a result, the unemployment rate
has gradually moved higher over the past year. The economy is likely to be
operating with a degree of spare capacity for some time yet. With growth in
labour costs subdued, it appears likely that inflation will remain consistent
with the target over the next one to two years, even with a lower exchange
rate.”

He went on: “Credit is recording
moderate growth overall, with stronger growth in lending to investors in
housing assets. Dwelling prices continue to rise strongly in Sydney, though
trends have been more varied in a number of other cities over recent months.

“The Bank is working with other
regulators to assess and contain risks that may arise from the housing market.”

He also noted that the Australian
dollar has declined noticeably against a rising US dollar, though less so
against “a basket of currencies”, and remains above most estimates of its
fundamental value. While conceding that a lower exchange rate is likely to be
needed in the near future to achieve balanced growth, he said: “The Board judged that, having
eased monetary policy at the previous meeting, it was appropriate to hold interest
rates steady for the time being.”

Westpac chief economist Bill
Evans, who rightly predicted February’s cut, had said that a major
cost in delaying the next interest rate cut for another month or more was that
the Australian dollar might start responding to a benign rates outlook.

Domain Group’s Andrew
Wilson, who did not anticipate last month’s move by the RBA, had predicted a
March cut, citing poor
recent data, particularly unemployment. He said: “The new easing cycle must maintain
momentum to be effective given the marginal level of cuts and conservative
mindset of consumers.”

According
to comparison website finder.com.au, of the 37 experts questioned on their
predictions for the March announcement, 16 (43 per cent) were predicting a cut.

Those that felt movement was
unlikely at this stage said they believed the most recent cut needed more time
to filter through the economy before the Reserve Bank would cut again.

In the finder.com.au Monthly
Reserve Bank Survey, BIS Shrapnel’s Richard Robinson said: “They’ll hold to
avoid overheating the housing market and to keep their powder dry for when they
might want to ‘encourage’ another drop in the exchange rate.”

Onthehouse.com.au’s Peter
Boehm says: “You need more than a 0.25 per cent drop in interest rates to
materially stimulate the economy.”

China cut
its interest rate by 25 basis points at the weekend.

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