News

Check out market updates

Reserve Bank keeps interest rates on hold at 2.25 per cent

The Reserve Bank has resisted pressure to cut the official interest rate again, though the decision has done nothing to dampen expectations that another cut is around the corner.

Having surprised most economists last month by reducing the cash rate to 2.25 per cent, the RBA this time defied expectations by keeping rates on hold.

Money markets had also bet on another cut, but the RBA board was unmoved by more recent evidence of economic weakness, particularly official data released last week showing mining and non-mining businesses were trimming their investment plans.

Even without the cut, the official cost of borrowing remains at its lowest rate since the Reserve Bank gained independence from government in the 1990s.

“The board judged that, having eased monetary policy at the previous meeting, it was appropriate to hold interest rates steady for the time being,” RBA governor Glenn Stevens said in his statement on the decision.

“Further easing may be appropriate over the period ahead, in order to foster sustainable growth in demand and inflation consistent with the target.

“The board will further assess the case for such action at forthcoming meetings.”

Those few words will add further to expectations, given even the economists who bet against a cut today are mostly expecting the RBA will move again in coming months.

“We continue to favour May as the most likely timing for the next cut in the cash rate,” St George Bank senior economist Hans Kunnen said before the RBA’s decision was announced.

Mr Stevens’s statement also touched on the risk posed by rising property prices, particularly the strong gains in Sydney.

“The bank is working with other regulators to assess and contain risks that may arise from the housing market,” he said.

One part of today’s statement that was unchanged was the paragraph stating that the Australian dollar remains above its fundamental value.

The decision not to cut added to the problem though, in the short term at least, with the Australian dollar quickly rising 0.5 per cent to 78 US cents.

Something not mentioned today was what impact the RBA expects if it does lower rates again, given Mr Stevens admitted last month that cuts were having less impact on consumer sentiment and spending.

Also absent was mention of the pain lower rates cause to those who rely on interest earned on their savings, particularly retirees.