RBA holds cash rate, dollar still 'uncomfortably high'

by 04 Dec 2013
The RBA has kept the official cash rate on hold, but highlighted ongoing concerns surrounding the high Australian dollar.

At its December meeting, the RBA board left the rate at its record low of 2.5%, while RBA governor Glenn Stevens reiterated his concerns that the dollar remains ‘uncomfortably high’.

“A lower level of the exchange rate is likely to be needed to achieve balanced growth in the economy,” said Stevens.

“The board will continue to assess the outlook and adjust policy as needed to foster sustainable growth in demand and inflation outcomes consistent with the target.”

Stevens highlighted the recent strengthening of the housing market, indicating this will have a positive effect on investment over time.

“The pace of borrowing has remained relatively subdued overall to date, though recently there have been signs of increased demand for finance by households. There is also continuing evidence of a shift in savers' behaviour in response to declining returns on low-risk assets,” said Stevens.

Low interest rates and readily accessible funding for creditworthy borrowers were also positive signs for the economy, he said.

“Overall, global financial conditions remain very accommodative. Volatility in financial markets has abated recently.”

Mortgage Choice spokesperson Jessica Darnbrough welcomed the RBA’s call, saying it is indicative of overall strong economic conditions.

“More than 55% of Australians believe the economy will remain strong throughout 2014. This is no doubt a result of the recent spate of positive economic data.

"Research by RP Data shows house prices rose by 1.9% over the September quarter. This subtle growth in dwelling values is encouraging consumers to be more optimistic about the state of the economy.

“With all of this positive data spilling out of the Australian economy, it was largely unsurprising to see the Reserve Bank leave the cash rate untouched this month.”

HIA chief economist Harley Dale approved of the decision, but said further rate cuts in the New Year should be expected.

“Following the last interest rate cut in August it became increasingly evident that the RBA was done for the year; and so that has proven to be the case," said Dale.

“Australia’s rebalancing act with economic growth is only at a nascent stage and the RBA needs to stand ready to lower interest rates further if the economy lacks momentum heading into 2014.

“For residential construction to play its traditional lead role in an economic up-cycle there will need to be a Federal government-led focus on reforming the inefficient and excessive taxation and regulation of new housing, together with a solution found to the lack of readily available finance for residential development which continues to constrain industry activity."