CANBERRA: The Reserve Bank has left its official cash rate unchanged at a record low after its monthly board meeting today, as widely expected by economists and traders. In its statement released at 2:30pm (AEST) today, the RBA said it had elected to keep the official cash rate at 2 per cent.
“Having eased monetary policy last month, the board today judged that leaving the cash rate unchanged was appropriate at this meeting,” the bank said. “Information on economic and financial conditions to be received over the period ahead will inform the board’s assessment of the outlook and hence whether the current stance of policy will most effectively foster sustainable growth and inflation consistent with the target.”
The Australian dollar rose by more than a quarter of a US cent after the decision. At 2:33pm, the currency was worth US76.59c, up from US76.29c shortly before the announcement. The sharemarket fell slightly, with the S&P/ASX200 at 5662.9 points at 2:33pm, down from 5672.2 points.
In it’s statement today the bank said the global economy was expanding at a moderate pace, but some key commodity prices were much lower than a year ago. The bank said the US Federal Reserve was expected to start increasing its policy rate later this year, but some other major central banks were continuing to ease policy.
“In Australia, the available information suggests the economy has continued to grow, but at a rate somewhat below its longer-term average,” the statement said. Household spending had improved, including a large rise in dwelling construction, and exports were rising.
“But a key drag on private demand is weakness in business capital expenditure in both the mining and non-mining sectors and this is likely to persist over the coming year. Public spending is also scheduled to be subdued,” the bank said.
With very slow growth in labour costs, inflation was forecast to remain consistent with the target over the next one to two years, even with a lower exchange rate.“In such circumstances, monetary policy needs to be accommodative.”
The RBA acknowledged that dwelling prices continued to rise strongly in Sydney, though trends had been more varied in other Australian capitals. The bank said it was working with other regulators to “assess and contain risks that might arise from the housing market”.
With regard to the Australian dollar, the RBA said the local currency had declined noticeably against a rising US dollar over the past year, though less so against a basket of currencies. “Further depreciation seems both likely and necessary, particularly given the significant declines in key commodity prices,” the RBA statement said.
The bank, faced with a sharp downturn in economic growth on the back of a sharp fall in mining investment and commodity prices after the end of a decade-long mining boom, cut interest rates by 25 basis points in February, and by the same amount again in May. Those cuts followed an 18-month period during which the bank held interest rates steady at 2.5 per cent.
A steep downturn in investment data last week has reinforced market expectations that March quarter GDP data tomorrow will remain weak, with economists expecting quarterly growth of 0.6 per cent and year-on-year growth of 2 per cent. Ahead of today’s decision, the interbank cash rate futures market was pricing in a 40 per cent chance of the RBA cutting its cash rate to 1.75 per cent by August.
Financial markets are also pricing in a 90 per cent chance of interest rates being cut by the end of this year, with some economists tipping rates will fall to as low as 1.5 per cent by December.
