RBA keeps rates on hold in July

RBA keeps rates on hold in July

The Reserve Bank of Australia (RBA) has kept the official cash rate on hold at 1.5 per cent.

The RBA's decision to keep the official cash rate on hold at 1.5 per cent was widely predicted by economists, and marks the 11th month in a row the central bank has stood still.

In his statement accompanying the monetary policy decision, RBA governor Philip Lowe said the "broad-based pick-up" in the global economy is continuing.

"As expected, [Australian] GDP growth slowed in the March quarter, partly reflecting temporary factors," he said.

"The Australian economy is expected to strengthen gradually, with the transition to lower levels of mining investment following the mining investment boom almost complete. Business conditions have improved and capacity utilisation has increased."

House prices have been "rising briskly" in some markets, although "there are some signs that these conditions are starting to ease. In some other markets, prices are declining", Mr Lowe said.

"Taking account of the available information, the board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time," he said.

St George senior economist Janu Chan articulated the popular view that the RBA is currently 'stuck' when it comes to interest rates.

"The RBA will be encouraged by the improvement in the labour market, but will still be of the view that there remains spare capacity in the economy. That would prevent any thought of raising rates," Ms Chan said.

"However, ongoing concerns regarding risks from the housing market and high household debt is preventing any cuts to rates."

The futures market had 'no change' priced in as a near certainty, with the ASX 30 Day Interbank Cash Rate Futures July 2017 contract trading at 98.505 yesterday afternoon (reflecting a 2 per cent chance of a cut to 1.25 per cent).

The ANU's Centre for Applied Macroeconomics Analysis (CAMA) RBA Shadow Board advocated a 'hold-and-wait' policy, attaching a 59 per cent probability to 1.5 per cent being the "appropriate setting".

"Australia’s economic outlook remains mixed. The unemployment rate unexpectedly fell to 5.5 per cent, while headline inflation remains well contained," said the Shadow Board's July statement.

"On the other hand, household debt continues to break new records, raising concerns about a possible housing crash in the major capital cities."

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