CANBERRA: The Reserve Bank of Australia kept the cash rate steady at 2 per cent, but left the door ajar for a further cut this year.
The decision was widely expected, and after an initial spike the Australian dollar quickly settled back to around US74.80¢. It was later trading at US74.87¢.
“The board today judged that leaving the cash rate unchanged was appropriate at this meeting,” RBA governor Glenn Stevens said in a statement.
“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 statement’s conclusion was almost identical to last month’s, when the RBA also opted to leave the cash rate unchanged after a 25 basis point cut in May.
The main change in language this time concerns the unfolding dramas in Greece in China, which Mr Stevens noted had yet to affect long-term interest rates.
“Despite fluctuations in markets associated with the respective developments in China and Greece, long-term borrowing rates for most sovereigns and creditworthy private borrowers remain remarkably low,” Mr Stevens noted.
Once again, he noted the relative strength of the dollar on a trade-weighted basis – describing further depreciation “both likely and necessary” – and referred to the pace of house price inflation in Sydney and Melbourne.
Mr Stevens recently described parts of the Sydney property market as “crazy”, while fellow board member and Treasury secretary John Fraser said the same segment had entered bubble territory.
The central bank is working with regulators such as the Australian Prudential Regulation Authority to curb growth in mortgage lending to buy-to-let and buy-to-sell housing investors.
Some analysts said that despite the fact the RBA did not spell out its openness to another rate cut later this year, the sluggishness of the Australian economy would warrant one.
“Even though the RBA decided to leave interest rates on hold at 2 per cent for the second month in a row, and did not provide a clear hint that more cuts lie ahead, we still think that a further weakening in the outlook will prompt it to reduce rates to 1.5 per cent by December,” said Capital Economics’ chief economist for Australia and New Zealand Paul Dales.
Others, however, stuck to the view that the RBA has finished its current easing cycle, although risks remained that might force its hand.
“Westpac’s current view is that rates will remain on hold through both 2015 and 2016,” said Westpac chief economist Bill Evans.
“However, the risks are clearly to the downside and will be dependent upon the bank’s confidence in the outlook for the unemployment rate and economic growth,” he said.
