Reserve Bank announces cash rate decision

by Calida Smylie07 May 2014
In a widely-predicted non-move, the Reserve Bank of Australia board has decided to keep the official cash rate on hold at its monthly meeting this morning.
The board has reiterated its firmly neutral stance and kept the cash rate on hold for the ninth consecutive month at a record low 2.5%.

Governer Glenn Stevens said financial conditions overall remain very accommodative and the most prudent course is a period of stability in interest rates. 

​ REINSW president Malcolm Gunning said the decision was not surprising and all eyes are now on the federal budget, which could have wide implications for Australians and the future direction of interest rates.

“While the housing market remains firm, we watch with interest the delivery of the budget, the high Australian dollar and rising unemployment levels which could negatively influence consumer confidence."

The official cash rate has fallen 225 basis points since November 2011, with the RBA cutting interest rates twice in 2013 in May and August. Interest rates have remained unchanged this year.
Australian Bureau of Statistics data shows the headline inflation rate for the first quarter of this year rose by 0.6% - slightly less than the 0.8% rise economists were predicting.

“This weaker than expected result meant the annual inflation rate is currently sitting at 2.9% - within the Reserve Bank's target range of 2 to 3%,” Mortgage Choice spokesperson Jessica Darnbrough said.

Recent positive employment data and climbing property prices would have also encouraged the board to leave rates on hold, she said.

RP Data national research director Tim Lawless said the ongoing low interest rate environment is likely to encourage higher levels of housing market activity, which provides a “fantastic multiplier” for the Australian economy.
“However we anticipate that natural affordability barriers and low rental yields will continue to dampen the exuberance that has been very much evident in Sydney and Melbourne.”
The latest housing market results from RP Data and Rismark shows the nation’s housing markets are starting to return to more sustainable levels after a solid growth run.
Capital city dwelling values have risen a cumulative 16.1% since the growth phase started back in June 2012. 
“The April results showed a slowdown in dwelling value appreciation, up just 0.3% over the month, which is likely to be a welcome result after such previously strong conditions,” Lawless said.  
Twelve of Australia’s leading economists polled by comparison website unanimously expected the official cash rate to remain unchanged today.

But five out of the 12, including economists from Commonwealth Bank, National Australia Bank, HSBC, St George Bank and AMP, are betting on a rate rise by the end of this year.

A further three experts from ANZ, Bank of Sydney and RAMS are predicting the next rate change will be in 2015, while four were unsure of the next rate move.
It is a different story across the ditch – last week the Reserve Bank of New Zealand raised its official cash rate for the second time in two months, lifting rates to 3% as it forges ahead with a policy-tightening cycle to ward off an inflation threat.

The RBA will next meet on 3 June.