Finance Finance News Interest rates on hold

Interest rates on hold

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The Reserve Bank has kept interest rates on hold, making it 12 months since it took rates to a record low of 2.5 per cent.

Most economists are now forecasting at least another six months without a change to the official cash rate, with a string of hikes expected in the new year.

The Australian dollar remained steady after the decision. At 1435 AEST, the Australian dollar was at 93.27 US cents, up slightly from 93.26 US cents just before the RBA’s decision was announced.

The RBA last changed the rate in August 2013, cutting it by a quarter of a percentage point. This is the longest period of stability since it remained at 5.5 per cent between March 2005 and May 2006.

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The statement by the central bank was virtually unchanged from July, with no sign of a change in policy in the coming months.

Governor Glenn Stevens reiterated there was likely to be a period of stability in rates with policy “appropriately configured to foster sustainable growth in demand and inflation outcomes consistent with the target”.

Continued low interest rates were expected to help growth strengthen over time, although growth was expected to be “a little below trend over the year ahead”, Mr Stevens said.

He noted that recent data showed an increase in inflation, affected by the decline in the exchange rate last year.

“But growth in wages has declined noticeably and is expected to remain relatively modest over the period ahead, which should keep inflation consistent with the target even with lower levels of the exchange rate,” he said.

Economists react

HSBC chief economist Paul Bloxham said while the Australian dollar remains high, it is mostly due to overseas factors beyond the Reserve Bank’s control.

“The RBA would clearly like a lower Aussie dollar to help with Australia’s great rebalancing act,” Mr Bloxham said.

“But they can’t do much about it.”

“We think they seem quite comfortable where they are, and we don’t think they’ll do anything for the rest of the year.”

Commonwealth Bank chief economist Michael Blythe said he didn’t expect any changes to the cash rate this year.

“We’ve already had 12 months without a change in interest rates so that period of stability is already quite lengthy,” he said.”

“In our forecasts we have them starting to nudge interest rates up from February next year.”

Nine of those economists surveyed by AAP predict a hike in the first half of 2015, which would be the first interest rate rise in more than four years.