The Reserve Bank of Australia has opted to keep the cash rate steady at two per cent, in line with predictions by economists and currency traders.

Futures traders had put the likelihood of a rate cut at four per cent, meaning a cut would have been a major shock to the market.

In his statement, RBA governor Glenn Stevens said: “Having eased monetary policy last month, the Board today judged that leaving the cash rate unchanged was appropriate at this meeting.”

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The decision saw a spike in the dollar, rising from US 76.3 cents to US 76.7 cents. The ASX 200, meanwhile, fell by about 10 points.

On the upside, Mr Stevens said household spending and dwelling construction was up, and that economy continued to grow, though “at a rate somewhat below its longer-term average”. But he went on:

“A key drag on private demand is weakness in business capital expenditure in both the mining and non-mining sectors and this is likely to persist over the coming year. Public spending is also scheduled to be subdued.

“Overall, the economy is likely to be operating with a degree of spare capacity for some time yet. With very slow growth in labour costs, inflation is forecast to remain consistent with the target over the next one to two years, even with a lower exchange rate.”

Mr Stevens gave little away about whether the RBA is considering another rate cut later in the year.

“Information on economic and financial conditions to be received over the period ahead will inform the Board’s assessment of the outlook and hence whether the current stance of policy will most effectively foster sustainable growth and inflation consistent with the target.”

Effect on house prices

As usual, Mr Stevens did not put much emphasis on the danger of a housing bubble, saying the RBA was working with other regulators to avert trouble.

However, Advantage Property Consulting director Frank Valenti suggested booming house prices were behind the decision to keep rates on hold.

“The property market is already red hot at the moment as a result of record low rates. You also have to think, the RBA has resorted to interest rate cuts this year because the economy is not performing. But at the same time, we can’t afford to heat the market up anymore. We’ve got Melbourne and Sydney boasting clearance rates at a 5 year high of over 80 per cent, so I’m not surprised interest rates have been held.”

Of the 34 economists and experts surveyed by finder.com.au, every one predicted the rate cut. In addition, 68 per cent forecast the cash rate will start rising next year.

One – Mark Crosby, Associate Professor of Economics at Melbourne Business School – even said it could start rising as early as October 2015

Money expert at finder.com.au Michelle Hutchison said: “There’s no doubt it will be a shock to the system for many borrowers when interest rates rise. We haven’t seen a rising interest rate cycle for almost five years, as the last time there was a cash rate hike was in November 2010. There are 419,566 first home buyers who have never experienced what it’s like to pay higher repayments.

“Many households are also borrowing more money and purchasing more expensive properties than ever before. For instance, the average first home buyer loan size has increased by $37,000 (13 percent) to a record high of $326,000 in March 2015.”