Finance Finance News RBA plays safe, keeps rates on hold

RBA plays safe, keeps rates on hold

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The Reserve Bank has left the official interest rate at 2 per cent for the fourth month in a row, as it waits for key economic data to come out in September.

The decision was widely expected by economists and traders alike.

As usual, RBA governor Glenn Stevens focused on international economic conditions in his statement. In particular he talked about softening conditions in China and the strengthening US economy.

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“The [United States] Federal Reserve is expected to start increasing its policy rate over the period ahead, but some other major central banks are continuing to ease policy.

“Equity markets have been considerably more volatile of late, associated with developments in China, though other financial markets have been relatively stable. Long-term borrowing rates for most sovereigns and creditworthy private borrowers remain remarkably low.

“Overall, global financial conditions remain very accommodative.”

On the Australian economy, Mr Stevens pointed to weak economic growth, but added that employment had picked up and unemployment had remained steady.

“Overall, the economy is likely to be operating with a degree of spare capacity for some time yet, with domestic inflationary pressures contained.”

The ASX 200 barely responded to the announcement, reflecting the fact that it was almost universally expected.

The Australian dollar rose modestly in response. At 2.40 pm it stood at 71.4 US cents, compared with 71.07 cents two hours earlier.

Key data in September

The RBA was probably reluctant to make any change to rates before two key announcements due in September: the June quarter GDP figures (which come out on Wednesday), and the US Federal Reserve’s interest rate decision.

September is the first month since the global financial crisis that the Fed has hinted it may lift rates again.

Such a move would probably push the Australian dollar down and increase business confidence, making another Australian rate cut unlikely.

However, recent volatility on global sharemarkets has made a US rate hike less likely.