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RBA leaves rates unchanged

 

eye,dollar sign,money,business,outlookThe Reserve Bank’s decision to keep the cash rate on hold at 2.5 per cent will support the retail industry to achieve $45 billion in pre-Christmas sales, representing a 4.3 per cent increase year on year.

This is the 16th month the RBA has kept the cash rate unchanged.

Russell Zimmerman, executive director of the Australian Retailers Association, said the current stability of interest rates has translated into a promising start to pre-Christmas trading.

“While retailers didn’t receive their Christmas wish of an interest rate cut today, the industry remains optimistic that the festive trading period is well and truly underway.

“It seems the stable cash rate has encouraged consumers to let go of their purse strings a little earlier than usual this year, but in order for sales to continue building momentum as Christmas approaches (and for the retail industry to return to a growth of six per cent) the Federal Government and RBA must do all that they can to ensure that retail trade is fully supported as consumers start their holiday shopping,” he said.

Anna McPhee, CEO of the Australian National Retailers’ Association, said: “Today’s announcement by the RBA to keep rates stable is a welcome decision by ANRA ahead of the busy Christmas retail period.

“The Christmas spending projections of $32.6 billion released by ANRA last week, today’s decision and consumer confidence trending up, will go well in delivering a slightly higher retail sales result than last year.”

Governor Glenn Stevens noted that the Australian dollar has fallen recently but that was largely due to the strengthening US dollar.

“The Australian dollar remains above most estimates of its fundamental value, particularly given the significant declines in key commodity prices in recent months,” he said.

“A lower exchange rate is likely to be needed to achieve balanced growth in the economy.”

Last week, RBA deputy governor, Philip Lowe, said the bank is in a position to cut interest rates again if it needs to, a move that was previously believed to be highly unlikely.

Since then several economists have started to forecast rate cuts for 2015, including Deutsche, Saxo, AllianceBernstein, Morgan Stanley and Western Union.

The futures market also has the cash rate below 2.5 per cent next year.

National Australia Bank senior economist, David de Garis, said the RBA had slightly strengthened its language on the Australian dollar being too high.

“They’re continuing to say the exchange rate is overvalued,” de Garis said.

“They’ve ramped that up a little bit perhaps.

“There are very nuanced changes in the statement but the thrust of policy, that is, leaving rates unchanged and giving this transition (from mining) time to percolate, seems to be their continued strategy.”

UBS interest rate strategist, Matthew Johnson, said there were no signs the RBA is considering a rate cut.

“There were very few changes made to the statement,” he said.

“Often movements in the global economic outlook moves the RBA and they cut their expectations for the global outlook a bit, as well as commodity prices and Japan.”

Johnson said there was an expectation in financial markets the RBA would move away from its stance of maintaining “a period of stability in interest rates”, but the RBA had held on to that phrase.

AAP

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