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RBA holds cash rate at 1.5%

RBA holds cash rate at 1.5%

The Reserve Bank of Australia announced the cash rate would be held at a record low 1.5% following its October board meeting.

The Reserve Bank of Australia (RBA) today held the official cash rate at 1.5% at its monthly board meeting, the first for Philip Lowe as Governor who has taken over from Glenn Stevens.

The decision to hold firm was broadly expected by the market. On Monday, the Australian Securities Exchange (ASX) RBA Rate Indicator was forecasting only a 2% chance of a cut to 1.25%. It gauges market expectations based on prices in the ASX 30-Day Interbank Cash Rate Futures.

In a statement released by the board after the meeting, Dr Lowe said that inflation "remains quite low" and added "this is expected to remain the case for some time".

The RBA has cut the cash rate twice this year, from 2% to 1.75% in May, and again in August to the current record low 1.5%.

Dr Lowe said that keeping the cash rate unchanged at this time "would be consistent with sustainable growth and achieving the inflation target [of between 2% and 3%] over time".

CommSec is forecasting one further cut to the cash rate in November.

"While we have a November rate cut pencilled in, it is looking less likely that the Reserve Bank will shift rates over the rest of 2016," CommSec said in a note.

Dr Lowe said in the RBA statement that while the economy was making necessary economic adjustments, a higher Australian dollar could "complicate this".

The Australian dollar dropped to US76.64 cents following the announcement, having traded reasonably steadily through the early part of the day at around US76.80 cents.

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.