Interest Rate Announcement 06.10.15
By | 6th Oct 15

The RBA keep interest rates on hold

The Reserve Bank of Australia met today and have announced to keep the official cash rate unchanged at 2.0 per cent. This decision means that we have had record low interest rates for five consecutive months and was predicted by most property and economic experts. Some also predict a further rate cut next month based on concerns with the global economy.

NAB Group chief economist Alan Oster has said “The Reserve Bank is in ‘sit and watch’ mode” as the non-mining sector is starting to improve there is no reason for them to make any changes at this stage.

HSBC's chief economist for Australia and New Zealand, Paul Bloxham, also expected the official cash rate to remain on hold. “The economy is continuing to balance and the improvement in the labour market has made the Reserve Bank much more comfortable with the economy,” said Mr Bloxham.

The global economy does continue to cause concern with the US keeping rates on hold which reflects concern of the strength of their economy. A decline in economic growth in the Chinese economy and the Eurozone bearing the cost of the refugee crisis.

Other considerations for this decision are that housing approvals fell over August and retail sales rebounded after a fall in July. The national unemployment rate improved marginally over August even though 6.2 per cent is still around the highest rate for 12 years.

The changes made by APRA look to be taking their desired effect now with clearance rates starting to soften in Melbourne and Sydney compared to the high recorded in Autumn. We feel that house prices will also flatten out with the heat starting to come out of the market.

In the statement issued by the Glen Stevens, Governor RBA states “Overall, the economy is likely to be operating with a degree of spare capacity for some time yet, with domestic inflationary pressures contained. Inflation is thus forecast to remain consistent with the target over the next one to two years, even with a lower exchange rate.

In such circumstances, monetary policy needs to be accommodative. Low interest rates are acting to support borrowing and spending. Credit is recording moderate growth overall, with growth in lending to the housing market broadly steady over recent months. Dwelling prices continue to rise strongly in Sydney and Melbourne, though trends have been more varied in a number of other cities. Regulatory measures are helping to contain risks that may arise from the housing market. In other asset markets, prices for commercial property have been supported by lower long-term interest rates, while equity prices have moved lower and been more volatile recently, in parallel with developments in global markets. The Australian dollar is adjusting to the significant declines in key commodity prices.”

To read the full report by the Reserve Bank of Australia, click here.