As expected, RBA leaves rates on hold
The Reserve Bank’s Monetary Policy Committee has left the cash rate unchanged at 4.75% for the 10th straight meeting.
It is now 11 months since the RBA last raised the cash rate. It raised the rate by 25 basis points to 4.75% in November 2010.
In his statement accompanying the decision, RBA governor Glenn Stevens said the board noted that “financial conditions have been easing somewhat, with interest rates for some housing and business loans declining slightly due to increased competition and the fall in some funding costs in financial markets”.
“The exchange rate has also declined from the very high levels of a few months ago. Credit growth remains low, however, and asset prices have declined,” he said.
Global factors continued to weigh on the mind of the RBA, Stevens said:
“Conditions in global financial markets have continued to be very unsettled, with uncertainty increasing about both the prospects for resolution of the sovereign debt and banking problems in Europe, and the outlook for global economic growth. While temporary impediments that had contributed to a slowing in growth in some countries over recent months are lessening, recent data suggest a continuing period of soft economic conditions in both Europe and the United States. Moreover, the uncertainty and financial volatility have reduced confidence, which could result in more cautious behaviour by firms and households in major countries,” Stevens said.
The decision was in line with a survey of 22 economists by Reuters, with all forecasting no rate change in October.
Four institutions, including Westpac, are tipping the cash rate to come down before the end of the year.
The dollar fell slightly, trading around the 95 US cents mark, 0.2% down on the day.
Laing + Simmons general manager Leanne Pilkington says she hopes the decision to leave rates on hold will continue to entice potential buyers to invest in the still-fragile property marketplace.
“The residential property market has been sluggish in recent months, to say the least,” she says.
“Uncertainty is understandable given the continuing instability of the Australian stock market, which has recently seen huge losses wiped from the value of shares, and the lingering unpredictability of US and Eurozone financial markets. Falling confidence has inevitably led to reduced spending and the underlying fear of another recession has everyone sitting on their hands.”
While she says there is still a strong case to be made for a cut in the official cash rate in the coming months, the decision to leave interest rates on hold does give a certain reprieve for those looking to enter the property market.
“A strong spring season will restore much-needed confidence in the housing market. Already there is evidence that it is being buoyed by a rush of [NSW] first-home buyers looking to get a foot in the door before the removal of stamp duty concessions on existing properties kicks in on December 31.”