THE Reserve Bank of Australia has kept the official cash rate on hold at the record low of 1.5 per cent for the 27th consecutive month.
The RBA last cut the cash rate in August 2016, following an earlier cut to 1.75 per cent in May. There has not been an official cash rate increase since November 2010.
Thanks to sluggish wage growth, weak household spending and the cooling housing market, most analysts don’t expect rates to rise until some time next year, with the RBA also dropping hints a change was unlikely.
According to AAP, the central bank held the rate at last month’s meeting due largely to low household spending, which has caused uncertainty for the economy.
Capital Economics is one of many firms who expect no change until late 2020, a stance also taken by Westpac.
At its meeting today, the Board decided to leave the cash rate unchanged at 1.50 per cent – https://t.co/pxrz3EBELg— RBA (@RBAInfo)
However, the other big banks say a rate rise is more likely to occur next year.
A recent Bloomberg survey of economists’ forecasts also found just one in 10 believed the rate would remain at the current level in late 2019.
In a statement issued following the RBA’s decision, its governor Philip Lowe said the low level of interest rates was “continuing to support the Australian economy”.
“Further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual,” he said.
“Taking account of the available information, the Board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.”
Mr Lowe said the Australian economy was “performing well” with the GDP increasing by 3.4 per cent and the unemployment rate declining to five per cent over the past year — the lowest in six years.
He also noted our terms of trade had increased in recent years and had been stronger than earlier expected, and that the outlook for the labour market “remains positive” — although wages growth remains low.
Mr Lowe said inflation was “low and stable” and that conditions in the Sydney and Melbourne housing markets had continued to ease while nationwide measures of rent inflation remained low.
But RateCity.com.au research director Sally Tindall said homeowners shouldn’t become “complacent” in the face of low interest rates.
“The RBA is unlikely to hike rates in the near future, but that doesn’t mean people should become complacent about paying down their debt,” she said.
“Keep an eye on your rate and shop around to see what other lenders are offering.
“The banks are desperate for new business, particularly as their profit margins are squeezed which is a win for borrowers.”
Today’s meeting follows Australia’s September quarter consumer price inflation (CPI) report which was released last week, and also falls ahead of new economic forecasts coming from the RBA on Friday.