RBA reveals cash rate decision

RBA reveals cash rate decision

The official cash rate for February has been announced by the Reserve Bank of Australia following its monthly board meeting.

The RBA board has decided to keep the cash rate at 1.5 per cent, a move predicted by most industry experts.

All of the 25 surveyed experts on the finder.com.au panel correctly predicted the record low cash rate to remain unchanged.

The head of investment strategy and chief economist at AMP Capital, Shane Oliver, correctly predicted the RBA’s decision, but he said that despite strength in some economic indicators, factors such as low inflation, stunted wage growth, consumer uncertainty and the high exchange rate would have all been considered by the RBA in its decision to hold rates where they were.

“While confidence, jobs and non-mining investment are strong, inflation remains below target, wages growth remains around a record low, uncertainty is high regarding the outlook for consumer spending and the Australian dollar is too strong. As such, it is too early for the RBA to consider raising interest rates,” Mr Oliver said.

Independent property market economist Dr Andrew Wilson agreed, noting that a reduction in housing market activity would have also influenced the central bank’s decision to keep the cash rate on hold.

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“The latest data is too benign for rate movement: low inflation, higher dollar, cooling house prices, positive labour market, declining building approvals, lower home investor activity — a mixed bag means wait and watch early days 2018 for [the] RBA,” Mr Wilson said.

CoreLogic’s head of research, Tim Lawless, wasn’t surprised by the central bank’s decision, and he also made reference to slowing activity in the housing market, citing a 0.7 per cent fall in dwelling values.

Mr Lawless said: “With headline inflation remaining below the RBA’s target range of 2–3 per cent, housing markets moving through a controlled slow down, a higher than forecast Australian dollar and household debt at record highs, the hold decision from the Reserve Bank was widely expected.”

Despite also correctly predicting a hold decision, managing director of Market Economics Stephen Koukoulas suggested that there’s evidence that a rate cut is required.

“[The] RBA continue[s] to miss its inflation target, and despite evidence that a rate cut is needed, it is likely to remain on hold. It will cite an improving global economy as a key reason,” Mr Koukoulas said.

“For more than two years now, inflation’s been below the bottom of their target range, so I think they need to ensure monetary policy is set towards reflating the economy, getting inflation a little bit higher.

“You then throw in a few issues like the softness in housing, which has been something of a concern.

“If the house prices in Sydney and Melbourne keep falling, there’s a potential risk to the economy there.”

However, 81 per cent of the panellists predicted that the next cash rate movement will be up, with 12 panellists expecting the RBA to lift the cash rate as early as May.

Amid a historic 6 per cent plunge in the Dow Jones on the US Stock Exchange, professor at Monash University Mark Crosby claimed that the RBA board would be influenced by movements in foreign markets, but he expects the next rate movement to be up.

“2018 will be watch and wait for the RBA, as they observe movements in overseas rates and ponder timing for a rate rise in Australia,” Mr Crosby said.

Likewise, Mortgage Choice CEO John Flavell made reference to global factors that he believes would have also contributed to the RBA’s decision.

“Globally, the Federal Reserve Bank in the United States is clearly confident about the state of the economy, given that the bank lifted the Federal Funds Rate three times throughout 2017,” the CEO said.

“Further, the Federal Reserve Bank has made it very clear that it will continue to increase the Federal Funds Rate throughout both 2018 and 2019.”

RBA reveals cash rate decision
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