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RBA makes official cash rate call - Aug 2017

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Reporter 5 minute read

The Reserve Bank of Australia has announced its official interest rate verdict for August following its monthly board meeting.

The RBA met industry expectations today, announcing its decision to hold the official interest rate at the record low of 1.5 per cent for August, marking a year since the official cash rate last changed. The cash rate last moved in August 2016, shifting down to the current rate.

Most industry commentators, including all 35 respondents on the finder.com.au panel, correctly predicted a "hold" verdict. 

A survey of the broker network at HashChing supported this, with 93.94 per cent of brokers predicting a hold verdict in August. 

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RateCity.com.au money editor Sally Tindall said that our economy is still not strong enough to justify a rate hike and not weak enough to warrant a cut in official interest rates.

“The latest economic figures show our economy is in neutral," she said. "Inflation has dropped to 1.9 per cent, just below the RBA’s target range of 2–3 per cent and unemployment remains steady at 5.6 per cent.

“The RBA will be concerned about the Australian dollar rising to US80 cents, but not worried enough to justify a rate cut. We expect interest rates to remain on hold in the short to medium term.”

Laing+Simmons MD Leanne Pilkington said that she anticipated the hold verdict, given that the RBA has indicated its intention to cautiously manage inflation to the preferred 2–3 per cent range. She also said that it appears “reticent” to reduce rates further.

“The weak inflation forecast in the June CPI figures point[s] to a steady rate scenario for the short term. With employment levels also steady, this is good news for the property market on the whole,” said Ms Pilkington.

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LJ Hooker’s Mathew Tiller agreed, and was unsurprised at today’s announcement given that there had been “little discernible change” in economic indicators since last month’s RBA meeting.

 

Economist Saul Eslake said that the RBA would clearly prefer not to have to cut rates any further, but is also in no hurry to start raising them—even if central banks elsewhere in the world do.

“Economic data since the last board meeting showed more good data on employment, and business conditions, offset by another quarter of very low inflation and softness in household spending, didn’t present a strong case to move in either direction,” said Mr Eslake.

Domain’s Andrew Wilson said that the RBA is clearly taking a more medium-term view of the macroeconomy, regardless of the current “insipid intransigence” of key economic performance indicators.

Equally, Mortgage Choice’s Jessica Darnbrough wasn’t surprised at today’s announcement.

“Last month the RBA made it clear that its current monetary policy setting is appropriate for the time being,” she said. 

AMP’s Shane Oliver said that while growth was weaker than expected in the March quarter, recent data suggests it's back on track—thus reducing pressure to cut rates again. 

CoreLogic’s Tim Lawless said that not only is he not surprised that the RBA left rates as is, but also thinks that rateincreases in the short term are unlikely.  

“Rate hikes may be some way off. Recent declines in the US dollar and strengthening commodity prices have placed added pressure on the Australian dollar, which may reduce export demand. Financial markets indicate the cash rate won’t rise until late 2018.”

RBA makes official cash rate call - Aug 2017
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