Finance Finance News Low rates left on hold

Low rates left on hold

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The Reserve Bank has kept interest rates on hold at the record low of 2.5 per cent for the tenth straight month. The central bank had little reason to change the rate following a tough federal budget which has seen house prices and residential building approvals falling, and knocked consumer sentiment – now at its lowest levels since 2011.

The bank reiterated its sentiment from May, that the low cash level was appropriate for growth in demand and inflation.

Read the RBA’s statement here

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

He said there had been some signs of improvement in the local economy. On the dollar he questioned why it had not come down with the steep fall in iron ore prices.

“The earlier decline in the exchange rate is assisting in achieving balanced growth in the economy, but less so than previously as a result of the higher levels over the past few months.

“There has been some improvement in indicators for the labour market in recent months, but it will probably be some time yet before unemployment declines consistently.”

The Australian dollar was relatively unchanged after the board’s decision, at 92.55 US cents around 2:40pm (AEST).

The result was not a surprise with all 15 market economists surveyed by AAP saying the cash rate would stay at a record low of 2.5 per cent. Nine said there wouldn’t be any movement before the end of the year.

Commonwealth Bank senior economist Michael Workman said rates looked likely to stay on hold for at least the next few months.

“The RBA’s view is that activity in parts of the economy remains subdued though they indicated that there seemed to be some improvement coming in non-mining investment,” Mr Workman said.

“We may have to wait until the minutes are released to get more detail on what has changed, particularly for the business investment outlook.

“Market pricing for a rate rise is still not until the third or fourth quarter of next year, so it’s a long way off.”

HSBC chief economist Paul Bloxham said there were no surprises in the statement from the RBA that comes with the interest rates decision.

“They did not jawbone the currency lower even though they could have decided to do that,” he said.

“They do seem reasonably comfortable that Australia’s growth is continuing to rebalance.

Mr Bloxham said local economic growth will be strong enough by the end of the year for the Reserve Bank’s “period of interest rates stability” to end.

“We still think the RBA is unlikely to deliver further rate cuts and the next move for rates will be up and it could come around the end of the year,” he said.

“It depends on China and we think Chinese economic growth will lift in the second half of the year.”

In its May board meeting minutes the bank had said it was prudent to leave rates on hold while they continued to have the “expected effects” on economic activity.

Commentators also took to social media to analyse the result.

– with AAP

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