No Change! RBA keeps the rate the same
While economists have been divided on whether a cash rate cut was to be expected this
afternoon, the odds for an alteration ahead of today’s meeting were the highest they’ve been
since the rate last moved in August 2016.
However, the Reserve Bank of Australia has announced that the rate will remain on hold at
1.5%.
Given the election set to take place at the end of this month, it is less surprising that the RBA
would hold off on instituting a change. Both the government and opposition are promising
tax cuts intended to boost household finances, encourage spending and stimulate the
economy at large.
According to CoreLogic head of research Tim Lawless, “The flat CPI reading for the March
quarter wasn’t enough to drag interest rates lower, although the likelihood of a cash rate cut
over coming months remains high.”
“While inflation remains below the RBA’s target range, labour markets generally remain
relatively strong, supported by New South Wales and Victoria, and the decline in housing
values has lost some speed over recent months,” he added.
RBA Governor Philip Lowe said the board would be “paying close attention” to the labour
market at its upcoming meetings, hinting any sustained up-tick in unemployment could lead
to a rate cut.
“The inflation data for the March quarter were noticeably lower than expected and suggest
subdued inflationary pressures across much of the economy,” he said.
The statement revealed the bank does not expect inflation to get back up between its target
band of between 2-3 per cent before 2020.
“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,” Dr Lowe said.
He said the house price adjustment was continuing. Prices dropped by 10 per cent last year in
Sydney and Melbourne, according to CoreLogic, with analysts predicting a similar drop this
year.
“The demand for credit by investors in the housing market has slowed noticeably as the
dynamics of the housing market have changed,” he said.
Economists and the business community have been divided on the wisdom of cutting already
low rates in the lead-up to an election.
The RBA has intervened in a federal election campaign to change borrowing rates only twice
in Australian history. It ultimately decided to keep the status quo despite the Australian
Bureau of Statistics reporting lower than expected retail trade figures.
Home owners will now have to wait until June to see if they will get relief from rising cost-
of-living pressures, as the central bank gives itself time to assess the impact of the policies of
an incoming Labor or Coalition government.