The Reserve Bank of Australia (RBA) has decided to keep its cash rate at an historical low of 2.5 per cent in its August meeting and affirmed its neutral bias.
The move was largely anticipated by analysts with a broad view that rates won’t rise until 2015.
RBA governor Glenn Stevens says the most prudent course is likely to be a period of stability in interest rates.
Mr Stevens says Australian growth has been supported by strong increases in resource exports as new capacity came on line.
Mr Stevens has also noted strong expansion in housing construction, and declining investment spending in the resources sector.
The central bank believes it will probably be some time yet before unemployment declines consistently.
With growth in wages declining noticeably, inflation should remain consistent with the target, even with lower levels of the exchange rate.
Prior to today’s announcement - FNN spoke to CMC Markets Chief Market Strategist Michael McCarthy about his outlook for interest rates:
“Well its quite clear that the read on second quarter inflation will be one of the key determinates about whether or not the RBA moves. We have been saying for some months it would be unlikely they’d move before that. The concern for the RBA is that we are now starting to bump up against that three per cent top of their preferred range. Now the RBA is not forced to act if inflation goes over three per cent but it will certainly be considering it and it’s likely the markets will anticipate a rate rise sooner rather than later. I don’t believe that the RBA will lift rates at this August meeting however I do expect to see a rate rise from the RBA before year end. And frankly they might spoil Melbourne Cup Day once again.”
