RBA announces cash rate decision

by Julia Corderoy07 Jun 2016
The Reserve Bank of Australia has left the official cash rate on hold at 1.75%, after a surprise drop in May.

Economists and analysts unanimously expected the cash rate to remain steady today, according to finder.com.au’s monthly Reserve Bank survey.

However, CoreLogic’s head of research, Tim Lawless, said today’s decision was made despite conflicting economic trends. 

“On one hand we have an economy that is growing at just over 3% per annum, low unemployment and a re-accelerating housing market,” Lawless said.  

“On the other hand the RBA is confronted with a core inflation reading which is at a record low as well as the lowest wages growth on record.”

He said the prospect of a further rate cut later this year is “still well and truly on the cards”, and he is not alone. According to the finder.com.au survey, more than two thirds (68%) of those surveyed predict there’s a further cut on the way this year. 

Like Lawless, most believe the cut will come in August after inflation figures are released in July. 

“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,” he said. 

But the housing market will be a concern for the central bank, Lawless said. 

“CoreLogic reported a 1.6% rise in capital city home values last week, following a 1.7% rise in April.  The stronger housing market conditions have been enough to reinflate the trend rate of growth which is something the RBA and the banking sector regulator are likely to be keeping a close eye on.

“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.”