Finance Finance News Rates left at record low

Rates left at record low

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Borrowers will enjoy another month of record low interest rates after the Reserve Bank of Australia (RBA) kept the official cash rate on hold at its monthly meeting.

The central bank left rates at 2.5 per cent, extending the current period of interest rate stability to 13 months. Rates last changed in August 2013 when they were cut to 2.5 per cent.

Economists surveyed by Bloomberg were unanimous in their belief that the central bank would not move today.

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The RBA has been reluctant to raise interest rates with weak employment growth and fragile consumer confidence, however strong growth in house prices is a factor weighing against further rate cuts. The RBA is also contending with a high Australian dollar, which is making parts of the economy uncompetitive.

On the other hand, a weak labour market and soft consumer sentiment argues for further rate cuts.

Settings appropriate

RBA governor Glenn Stevens said rates would remain “accommodative”.

“Interest rates are very low and have continued to edge lower over recent months as competition to lend has increased. Investors continue to look for higher returns in response to low rates on safe instruments,” he said in a statement.

“Looking ahead, continued accommodative monetary policy should provide support to demand and help growth to strengthen over time. Inflation is expected to be consistent with the 2–3 per cent target over the next two years.

“In the Board’s judgement, monetary policy is appropriately configured to foster sustainable growth in demand and inflation outcomes consistent with the target.”

House price growth

However, yesterday’s RP Data August home price figures showed a fresh acceleration in home prices, which would have made the RBA’s previous statement inaccurate if repeated.

This month the governor substituted that for the curt: “The increase in dwelling prices continues.”

Interestingly, the RBA governor also made mention of Chinese real estate in the context of policymaker’s efforts to keep that nation’s growth around a 7.5 per cent target, noting that “weakening property markets [are] a challenge in the near term.”

Mr Stevens also changed aspects of his commentary on parts of the domestic economy, this month noting “gradually improving business conditions and some recovery in household sentiment.”

Rates likely to stay low

In reaction to the RBA’s decision, John Caelli, ME Bank general manager markets, said in the context of a relatively high Australian dollar the cash rate was unlikely to move up before global interest rates increased.

“That would give the RBA some room to move if we also see inflation pressures starting to rise and economic growth return to be above trend.

“This scenario is still some way off and so the next change in rates is unlikely until at least the first half of 2015. With borrowers generally more indebted and inflation lower than in earlier decades, the cash rate may rise to around 4 per cent over the tightening cycle.”
—with AAP, ABC

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