BREAKING: RBA announces cash rate notice

by Calida Smylie03 Jun 2014
There were no shocks for interest rates today with the Reserve Bank of Australia leaving the official cash rate on hold yet again.
The board has reiterated its firmly neutral stance and kept the cash rate on hold for the tenth consecutive month at a record low 2.5%.

Governor Glenn Stevens said the board decided to do so as growth in the global economy is continuing at a moderate pace, helped by firmer conditions in the advanced countries.


“Financial conditions overall remain very accommodative. Long-term interest rates have fallen further and risk spreads remain low. Emerging market economies are once again receiving capital inflows. Volatility in many financial prices is currently unusually low. Markets appear to be attaching a very low probability to any rise in global interest rates over the period ahead.”


Monetary policy remains accommodative, he said.


“Interest rates are very low and for some borrowers have edged lower over recent months. Savers continue to look for higher returns in response to low rates on safe instruments. Credit growth has picked up a little. Dwelling prices have increased significantly over the past year, though there have been some signs of a moderation in the pace of increase recently.”


Stevens said on present indications, the board decided the most prudent course is likely to be a period of stability in interest rates.

RP Data research director Tim Lawless said there announcement came as no surprise and the RBA will likely also hold off on rate hikes in coming months.
“With the heat potentially coming out of the housing market, the RBA will find it much easier to keep interest rates at their low setting in an effort to continue stimulating housing construction and consumer spending,” he said.
“Add to the recently weak housing market a stubbornly high Australian dollar, lower commodity prices, slowing dwelling approvals and weaker consumer sentiment post budget and it’s clear that the RBA is likely to hold off on rate hikes for the foreseeable future.”
Lawless said the RBA should be less concerned about housing markets overheating, as RP Data yesterday reported the first fall in dwelling values in a year over the month of May and the trend rate of growth across the housing market has been cooling.
“Australia’s housing market has seen two years of escalating property values, so from a cyclical perspective the housing market is due for a slowdown.  Cooler housing market conditions shouldn’t surprise the Reserve Bank, who have been warning about overheated conditions and speculative investment activity in the Melbourne and Sydney markets,” he said.
All 16 economists and money experts in the monthly survey predicted no cash rate change tomorrow, but are divided on when the cash rate will rise.
Nine of the economists and experts in the survey – from AMPANZ, Bank of Sydney, ING Direct, RAMS, UBS, Heritage Bank, Moody’s Analytics and ME Bank – are forecasting the cash rate will not rise before next year.
But five respondents – from Commonwealth Bank, Commsec, Urbis, HSBC and St George Bank – expect a cash rate rise this year.