Reserve Bank makes cash rate call

by Miklos Bolza04 Apr 2017
The Reserve Bank of Australia (RBA) has announced that the cash rate will stay at 1.5% for the seventh month in a row.

The decision was widely expected by economists across the country with 37 out of 38 experts surveyed by Finder.com.au predicting the result.

“The bank will see no pressing need for an interest rate change at this stage. Economic growth is performing reasonably well in most areas and inflation is not yet a threat,” said Shane Garrett, senior economist at the Housing Industry Association (HIA).

“No drivers have been identified that would suggest that the RBA is looking at changing the absolute level of the cash rate in the immediate period ahead,” said Michael Witts, treasurer at ING Bank.

Tim Lawless, head of research at CoreLogic, said the Reserve Bank was “stuck between a rock and a hard place”.

“They aren’t likely to push rates higher just to quell housing market exuberance; doing so could push inflation lower and the Australian dollar higher as well as cancel out some of the much needed stimulus that many sectors of the economy are benefitting from.

“On the other hand, the RBA would be loath to push rates lower out of concern for adding further fuel to an already over heated housing market.”

He predicted the cash rate would remain on hold for the remainder of the year.

John Flavell, CEO of Mortgage Choice, was not surprised by the RBA’s decision.

“The economy continues to perform relatively well, giving the Reserve Bank of Australia no incentive to adjust the current monetary policy setting.”

Stable consumer sentiment, rising business confidence, increasing property prices, and out-of-cycle rate hikes by the banks have pushed the RBA to maintain the current cash rate, he said.

“That said, I do believe that future rate increases by the Reserve Bank are more likely than not.”

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