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Reserve Bank leaves cash rate at 2.5pc

by Nick Bendel10 minute read

The Reserve Bank has backed up the prediction of most economists by leaving the official cash rate at a record-low 2.5 per cent for the 13th consecutive month.

All 25 economists surveyed by comparison website finder.com.au had forecast that rates would remain on hold.

AMP Capital chief economist Shane Oliver told finder.com.au that there was no need to change the cash rate because the economic outlook had remained steady since the August meeting.

ANZ chief economist Warren Hogan said the economy had been playing out as expected, with housing doing well and the gradual transition to a non-mining recovery on track.


He also said the Reserve Bank would have derived no benefit from lowering rates because it would have squandered an option “that would be better used if a major problem emerges”.

All but two of the 25 economists said rates would rise next year, with 10 forecasting a rate rise in the first half and 13 in the second half.

According to the survey, 21 of the economists said when rates did start rising they would stop before they reached the historical average of about 5 per cent.

Commonwealth Bank chief economist Michael Blythe said the Reserve Bank would start a “modest tightening cycle” in February that would eventually lift rates to a ‘neutral’ 3.5 per cent.

Peter Munckton from Bank of Queensland said the Reserve Bank was likely to keep rates on hold for the rest of 2014/2015, but that it would most likely cut further if it did make a change.

Mortgage Choice spokesperson Jessica Darnbrough said it was likely the Reserve Bank would leave rates on hold for the foreseeable future.

“While new data emerging suggests the Australian economy is performing strongly, the high Australian dollar and rising unemployment woes will force the board to take a ‘wait and see’ approach to rates,” she said.

Meanwhile, LJ Hooker described the Reserve Bank’s decision to leave the cash rate unchanged as good news for the property market ahead of the biggest selling season of the year.

Chief executive Grant Harrod said low interest rates would continue to fuel the market as they had done over winter.

“There has been no traditional lull because there is still a shortage of listings yet strong demand both by owner-occupiers and investors,” he said.

“Consumer confidence remains high, which is a direct result of the continued low interest rates and the belief that there is still some life left in the current housing cycle.”

[Related: Reserve Bank forecasts more property growth]

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