Money Your Budget RBA keeps rates on hold for 33rd consecutive month
Updated:

RBA keeps rates on hold for 33rd consecutive month

The front of the Reserve Bank of Australia.
The Reserve Bank has kept rates on hold at its latest board meeting. Photo: Getty
Share
Tweet Share Reddit Pin Email

The Reserve Bank has confirmed the official interest rate will remain flat at 1.5 per cent, despite mounting expectations of a cut.

Explaining the RBA board’s decision at its monthly monetary policy meeting on Tuesday, governor Philip Lowe said there was still “spare capacity in the economy” and the outlook for the global economy “remains reasonable, although the risks are tilted to the downside”.

“The central scenario is for the Australian economy to grow by around 2.75 per cent in 2019 and 2020. This outlook is supported by increased investment in infrastructure and a pick-up in activity in the resources sector, partly in response to an increase in the prices of Australia’s exports,” Mr Lowe said.

“The main domestic uncertainty continues to be the outlook for household consumption, which is being affected by a protracted period of low income growth and declining housing prices.”

Tuesday’s announcement of no change to the cash rate extended the period without adjustment to an unprecedented 33 months. The official interest rate has not changed since it was cut to a record low of 1.5 per cent in August 2016.

Case for a cut mounts

However, Tuesday’s decision came as predictions escalated among economists for a cut this month or in June.

Callam Pickering, APAC economist with jobs site Indeed, said there was a “sense of inevitability surrounding the bank’s next move” despite its decision to hold – spurring speculation of a cut to already record-low rates.

“The case for a rate cut is clear: inflation is nowhere near the target. Core inflation has eased to just 1.4 per cent – near its lowest level in five decades. That’s tough to ignore and will ultimately force the RBA’s hand,” Mr Pickering said.

“It certainly didn’t help that economic growth slowed sharply over the second half of 2018 and wage growth remains anaemic. Our view is that the Reserve Bank is likely to deliver two rate cuts this year.”

Expectation of a cut mounted in the lead-up to Tuesday’s monetary policy meeting, with the ASX RBA rates indicator showing a 68 per cent chance of a May cut on April 25. By May 6, that had dropped back to 49 per cent.

Jobs growth key

Australia’s employment data has shown ongoing strength through 2019, though unemployment rose 0.1 per cent in April to 5 per cent.

That strength, according to BIS Oxford Economics’ head of Australia Macroeconomics Sarah Hunter, is one of the factors keeping the RBA from cutting rates further.

“[Tuesday’s] policy statement has reiterated the importance of the labour market (jobs growth in particular) to the RBA’s stance, with the last paragraph explicitly noting that they will be paying close attention to developments in the labour market,” she said.

“With the forward indicators suggesting that jobs growth will remain solid, we continue to expect the RBA to remain on hold in the near term. But any kind of deterioration in the job vacancies data or firms’ employment intentions could trigger a rate cut.”