RBA announces cash rate call

by Julia Corderoy02 Feb 2016
The Reserve Bank of Australia (RBA) has left the official cash rate on hold at 2% at its first monetary policy board meeting for 2016.

The cash rate was largely tipped to remain on hold today, with all 29 economists and analysists surveyed in finder.com.au’s monthly Reserve Bank survey agreeing the cash rate would remain on ice.

Speaking about the central bank’s decision, the chief executive of Mortgage Choice, John Flavell, said the robust property market business conditions would have pleased the RBA board. 

“Data from CoreLogic RP Data shows property values continue to climb fairly steadily across most capital cities, with values increasing 0.9% over the month of January. In addition, business confidence and conditions remain surprisingly robust, while underlying inflation remains within the Reserve Bank’s target band range.

“New data from the Australian Bureau of Statistics found the key measures of underlying inflation rose by 0.55% on average throughout the fourth quarter, while annual inflation hit 2% - still within the Reserve Bank’s 2%-3% target band range.”

However, a cash rate cut is possible in the future, according to Flavell.

“While there is still scope for the Reserve Bank of Australia to cut the cash rate over the coming months, the trigger for an immediate cash rate cut was not there this month.

“Moving forward, the Reserve Bank will continue to keep a close eye on inflation, property prices and consumer confidence.”

CoreLogic RP Data head of research, Tim Lawless agrees, saying the housing market is giving the RBA plenty of room to drop rates further.

“The RBA probably doesn’t need to worry too much about over stimulating the housing market via another rate cut; mortgage rates are already higher than a year ago due to the higher capital requirements implemented by APRA and the pace of investment growth has fallen below APRA’s 10% speed limit imposed in December 2014…. 

“With heat in the housing market no longer likely to be a major concern for the RBA, a major obstacle has been removed from preventing rate cuts and we may see the cash rate move lower later in the year.”
 

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