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Rates stay on hold

Tuesday, 2nd Feb 2016
Categories: Market News, Newsletter

As largely expected, the Reserve Bank of Australia (RBA) has left the official cash rate on hold at 2% in its February board meeting.

Announcing the decision to leave rates unchanged, RBA governor Glenn Stevens said that there was “reasonable prospects for continued growth in the economy”.

“In Australia, the available information suggests that the expansion in the non-mining parts of the economy strengthened during 2015 even as the contraction in spending in mining investment continued,” Mr Stevens said.

“Surveys of business conditions moved to above average levels, employment growth picked up and the unemployment rate declined in the second half of the year, even though measured GDP growth was below average. The pace of lending to businesses also picked up.”

While the economic outlook from the RBA proved to be more upbeat, Mr Stevens left the door open for further rate cuts in 2016 given that inflation remained close to target.

“Continued low inflation may provide scope for easier policy, should that be appropriate to lend support to demand,” he said, adding that he expected inflation to remain low for the next year or two.

He said the low interest rates were also supporting demand and the regulatory measures imposed on financial lenders were working to contain risks in the housing market.

That statement refers to the overheated Sydney and Melbourne property markets where heightened investor activity has been blamed for driving up house prices in recent years.

In response, Australia’s financial watchdog has imposed restrictions on financial lenders that limit loans to property investors.

“Credit growth to households continues at a moderate pace, albeit with a changed composition between investors and owner-occupiers,” Mr Stevens said.

“The pace of growth in dwelling prices has moderated in Melbourne and Sydney over recent months and has remained mostly subdued in other cities.”

Mr Stevens also noted that the global economy was continuing to grow, with advanced economies recording improved growth while conditions were more difficult in some emerging economies.