Cash rate unchanged


pile of coins, dollar, moneyThe Reserve Bank of Australia has left the cash rate unchanged at a record low of 2.5 per cent, saying the current setting of monetary policy remained appropriate.

The decision was widely expected, with all 13 economists surveyed by AAP last week forecasting that the RBA would leave the cash rate on hold.

The RBA last cut the cash rate in August, by a quarter of a percentage point.

In a statement accompanying the decision, RBA governor Glenn Stevens said easing of monetary policy since late 2011 had supported interest-sensitive spending and asset values.

He said the effects of previous rate cuts were still working their way through the economy and would continue to do so.

“The pace of borrowing has remained relatively subdued to date, though recently there have been signs of increased demand for finance by households,” Stevens said.

“There is also continuing evidence of a shift in savers’ behaviour in response to declining returns on low-risk assets.”

Stevens said the economy had been growing a bit below trend in 2013 and this was expected to continue as the economy adjusted to the wind-down of the mining investment boom.

“There has been an improvement in indicators of household and business sentiment recently, though it is too soon to judge how persistent this will be,” Stevens said.

“Inflation has been consistent with the medium-term target.

“With growth in labour costs moderating, this is expected to remain the case over the next one to two years, even with the effects of the lower exchange rate.”

Although the Australian dollar had recently risen, it was still about 10 per cent below its level in April, he said.

Further falls in the currency would help in rebalancing growth in the economy, Stevens added.

“The board will continue to assess the outlook and adjust policy as needed to foster sustainable growth in demand and inflation outcomes consistent with the target,” he said.

JP Morgan economist Tom Kennedy said there is still the possibility of another interest rate cut this year.

“If you look at the statement it is very similar to what we’ve seen over the past few months, in particular last month,” he said.

“The burden is going to be in the economic data and if it deteriorates it will get them over line (for another rate cut).”

The September quarter consumer price index (CPI) will be released on October 23, two weeks before the RBA’s November board meeting.

Kennedy said if inflation remains benign then that would make a Melbourne Cup day interest rate cut very likely.

“When you get a soft CPI print, rising unemployment and pretty slow growth, those factors mean the RBA is once again a chance of taking the cash rate lower,” he said.


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