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RBA keeps cash rate unchanged at 1.5%

RBA keeps cash rate unchanged at 1.5%

Australia's central bank left the official cash rate unchanged at a record low 1.5% at its board meeting today.

The Reserve Bank of Australia (RBA) kept the official cash rate on hold at 1.5%, a move widely expected by the market.

At its board meeting today, the last for Glenn Stevens as governor of the central bank, the RBA said making no change to its monetary policy "would be consistent with sustainable growth in the economy and achieving the inflation target over time".

The decision also took into consideration that the RBA had cut the cash rate twice this year, in May and August, it said.

“In Australia, recent data suggest that overall growth is continuing, despite a very large decline in business investment, helped by growth in other areas of domestic demand and exports,” said Stevens, who will pass the baton to the current deputy governor, Philip Lowe, on September 18.

“Labour market indicators continue to be somewhat mixed, but suggest continued expansion in employment in the near term,” Stevens added.

The Australian dollar was little changed immediately before and after the rate call, trading at US76.2 cents at 2:35pm Sydney time. The Aussie reached an intra-day high of US76.37 cents around noon today, after closing at US75.82 cents yesterday, according to Bloomberg data.

Investors had priced in a 95% chance of no change to the cash rate before today’s announcement, according to the Australian Securities Exchange (ASX) RBA Rate Indicator, which gauges market expectations based on prices in the ASX 30-Day Interbank Cash Rate Futures.

Unchanged outlook

Stevens' statement today was largely unchanged from last month.

He reiterated that inflation in the country remains "quite low" and is expected to remain the case for some time, in view of low cost pressures locally and around the world.

He continued to state that a strengthening Australian dollar could get in the way of the nation's economic adjustments, mainly the move away from heavy dependence on the mining sector.

The governor maintained his stance on the global economic outlook, reiterating that emerging markets are facing more challenges than advanced economies, as China's growth moderates.

Strong economy

Data scheduled to be released tomorrow may show Australia’s economy expanding at a 3.4% annual rate, the fastest pace in about four years, CommSec chief economist Craig James pointed out.

He said global factors and technology may be the reasons that keep inflation lower than the RBA target range.

“The risk still lies with another rate cut,” he said. “Inflation data is released in late October. And if the figures suggest that inflation remains stubbornly below the 2-3% target band then it could cut rates again in November.”

The RBA “may also tolerate a low inflation outcome”, James added.

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.