Finance Finance News RBA leaves interest rates on hold at historic low

RBA leaves interest rates on hold at historic low

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The Reserve Bank has left interest rates on hold at a 60 year low of 2.5 per cent, amid signs that current monetary policy is stimulating the sluggish economy.

The central bank announced this afternoon that the official cash rate would remain unchanged for the seventh month in a row following its March board meeting this morning.

The decision was widely expected by economists. Reserve Bank Governor Glenn Stevens said last month that “the most prudent course was most likely to be a period of stability in interest rates” following indications that the low cost of borrowing was underpinning the housing market, retail sales and business confidence.

Governor Stevens reiterated his message when the RBA handed down their latest decision.

“On present indications, the most prudent course is likely to be a period of stability in interest rates,” he said.

Consumer demand was getting slightly better and there were signs that the housing construction sector was improving.

“Some indicators of business conditions and confidence have shown improvement and exports are rising,” he said.

“At the same time, resources sector investment spending is set to decline significantly and, at this stage, signs of improvement in investment intentions in other sectors are only tentative.”

Governor Stevens expects the unemployment rate to rise, but the overall economic picture looks encouraging.

“Over time, growth is expected to strengthen, helped by continued low interest rates and the lower exchange rate,” he said in a statement.

An AAP survey of 13 economists conducted last week found unanimously that interest rates would remain on hold in the first half of 2014.

Six of the economists forecast that the central bank would tighten monetary policy by year-end.

Four predicted no change, while just three believed the RBA would cut interest rates further.

HSBC Australia chief economist Paul Bloxham said that Mr Stevens’ statement showed the RBA planned to keep the cash rate on hold for some time.

“There are no hints here that the RBA is considering cutting interest rates further and we think the RBA’s easing phase is done,” he said.

The RBA had also toned down its rhetoric on the Australian dollar, after regularly described the local currency as “uncomfortably high” during 2013.

That suggested the central bank was no longer trying to push the currency lower.

“We think their concerted campaign to jawbone the Aussie dollar lower is over,” Mr Bloxham said.

With AAP