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Aussie dollar jumps as RBA holds cash rate at 1.5%

Aussie dollar jumps as RBA holds cash rate at 1.5%

The Australian dollar jumped to 76.57 US cents after the central bank kept the official cash rate unchanged at 1.5% in November.

The Reserve Bank of Australia (RBA) today left the official cash rate on hold at a record low 1.5% at its November board meeting.

The absence of a rate cut was largely in line with the expectation of financial markets, with a 4% chance of a rate reduction expected before today’s announcement, according to CommSec.

In a statement released after the conclusion of the board meeting, RBA governor Philip Lowe reiterated that making no change to its monetary policy "would be consistent with sustainable growth in the economy and achieving the inflation target over time".

“The Bank's forecasts for output growth and inflation are little changed from those of three months ago. Over the next year, the economy is forecast to grow at close to its potential rate, before gradually strengthening.

“Inflation is expected to pick up gradually over the next two years,” Dr Lowe said. The RBA has long held its target range for inflation at between 2% and 3%.

The Australian dollar jumped to 76.57 US cents after the announcement at 2:30pm Sydney time, having traded at a low of 75.98 US cents through the morning.

On the economy of China, Australia’s largest trading partner, Dr Lowe said growth in infrastructure and property construction have supported and steadied conditions there, although medium-term risks remain. 

Commonwealth Bank chief economist Michael Blythe said the RBA’s decision today was not “the bottom of the cash rate cycle just yet”.

“There have been some hints in recent RBA commentary that maybe the ‘least bad’ policy option is to tolerate longish periods of below target inflation without a response,” said Blythe.

“This approach makes sense when the broader economic picture looks OK and when there are risks with going too hard to get inflation back into the target range. Today’s no-change decision should be benchmarked against that thought,” he said.

CommBank had "pushed back" its forecast for the next rate cut to the second quarter of 2017.

This article is intended to provide general information of an educational nature only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. Past performance is not an indication of future performance.