No hint of hikes as RBA remains on hold

Melissa Jenkins
(Australian Associated Press)


The Reserve Bank remains firmly perched on the fence, leaving the official cash rate unchanged at a record low for an eleventh straight month.

The central bank kept the official interest rate at 1.5 per cent, as Governor Philip Lowe pointed to mixed labour market conditions as a reason for holding steady.

The market had speculated Dr Lowe could take a more hawkish stance in his monthly statement, following a recent shift in tone from central banks in Europe, the UK and Canada.

But his language was largely unchanged from June, St George Bank senior economist Janu Chan said in a note.

“The decision was widely expected by markets, although a sharp fall in the AUD after the announcement indicates that financial markets were prepared for a more hawkish stance,” he said.

The Australian dollar dropped from around 76.8 US cents just before the 1430 AEST announcement to 76.05 US cents by 1545 AEST.

JP Morgan chief economist Sally Auld said economic conditions were not yet strong enough to warrant a rate hike from the RBA.

“Not only are mortgage rates rising independently of the RBA cash rate, but it is not clear that recent data have been robust enough to tilt risks towards better growth and inflation outcomes,” she said.

Dr Lowe said jobs growth had been stronger in recent months and various indicators suggested the labour market would continue to strengthen.

“”Wage growth remains low, however, and this is likely to continue for a while yet,” he said.

The central bank boss downplayed a fall in economic growth in the March quarter, saying it partly reflected “temporary factors”.

His statement also did not include last month’s expectation that economic growth would increase gradually to above three per cent in a couple of years.

“It is likely that the near term growth forecasts will be revised down in the August Statement on Monetary Policy to account for the recent weather affected growth outcome,” CBA economist Kristina Clifton said.

“Although we think the longer run forecasts will remain unchanged.”


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