Interest rates on hold for now

Interest rates on hold for now

Posted on Tuesday, April 07 2015 at 2:48 PM

The Reserve Bank of Australia (RBA) has once again decided to leave interest rates as they are today, meaning the cash rate still sits at 2.25 per cent.

RBA governor Glenn Stevens
said in his announcement: “The available information suggests that growth is
continuing at a below-trend pace, with overall domestic demand growth quite
weak as business capital expenditure falls. 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 to say that
credit’s recording moderate growth overall and that growth in lending to
investors in housing assets is stronger than to owner-occupiers, though neither
appears to be picking up further at present.

“Dwelling prices continue to
rise strongly in Sydney, though trends have been more varied in a number of
other cities. The Bank is working with other regulators to assess and contain
risks that may arise from the housing market. In other asset markets, prices
for equities and commercial property have risen, in part as a result of
declining long-term interest rates.

“The Australian dollar has
declined noticeably against a rising US dollar over the past year, though less
so against a basket of currencies. Further depreciation seems likely,
particularly given the significant declines in key commodity prices. A lower
exchange rate is likely to be needed to achieve balanced growth in the economy.

“At today’s meeting the board
judged that it was appropriate to hold interest rates steady for the time
being. Further easing of policy may be appropriate over the period ahead, in
order to foster sustainable growth in demand and inflation consistent with the

REINSW President Malcolm Gunning says: “A decision to cut interest rates
would have seen us enter the territory of new record interest rate lows at a
time of a very buoyant housing market.

“Proceeding with caution was a sensible option as we are still seeing
the effects of the February interest rate cut,” he adds.

Mortgage Choice spokesperson Jessica Darnbrough says Sydney’s surging
property market ultimately encouraged the RBA to leave the cash rate alone.

“While the falling value of iron ore combined with a sudden slump in
both business and consumer sentiment had encouraged many economists to believe
the RBA would cut the cash rate again at the April Board meeting, it seems
Sydney’s soaring property values have forced the RBA to leave the cash rate on
hold for another month at least.”’s Reserve Bank
Survey shows that 76 per cent of economists and industry experts had predicted
the rates staying as they are for now.

BIS Shrapnel’s Richard Robinson believes the RBA will wait until May or
June to cut rates, in order to boost confidence following the budget.

“They may also want to time cut to get maximum downward pressure on the
Australian dollar,” he says.

Article source: