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RBA keeps cash rate on hold to start new financial year

RBA keeps cash rate on hold to start new financial year

The Australian dollar dropped after the Reserve Bank of Australia left the official cash rate at 1.5%.

In its first meeting of the new financial year the Reserve Bank of Australia (RBA) kept the official cash rate on hold at 1.5%.

In a statement that was largely unchanged from last month’s, the RBA’s Governor, Philip Lowe, spoke of stable financial markets across the globe and a slowly strengthening Australian economy.

The Australian dollar dropped slightly following the RBA’s announcement, trading at 76.08 US cents at 3.30pm (AEST) after trading at 76.78 US cents just a few hours earlier. The RBA continues to see a lower Australian dollar as a positive for the Australian economy.

“The outlook continues to be supported by the low level of interest rates. The depreciation of the exchange rate since 2013 has also assisted the economy in its transition following the mining investment boom. An appreciating exchange rate would complicate this adjustment,” said Lowe in the statement released after the meeting.

Housing market indications

One point of interest for many Australians is what might happen in the housing market over the next 12 months.

While Lowe left his comments on the housing market unchanged from the previous month, the decision to leave the cash rate on hold does not mean that we will see the same growth in the housing market that we saw last financial year, according to Tim Lawless, CoreLogic’s head of research.

“Importantly, the housing market is showing signs of slowing, with CoreLogic’s home value indices reporting a 0.8% rise in dwelling values over the June quarter, the lowest quarterly growth rate since December 2015,” said Lawless.

“While the cash rate has remained on hold, the same can’t be said for mortgage rates, which have been edging higher since September last year. Arguably, higher mortgage rates have done much of the heavy lifting in slowing down home value appreciation and cooling investment demand.”

Starting the new financial year

It’s very early in the financial year, but expectations are that the RBA will not move to change the cash rate in the short term, according to Savanth Sebastian, senior economist at CommSec.

“There is no urgency for rates to move in any direction. On the positive side of the ledger are record corporate profits, strong business conditions, a lift in infrastructure spending, firm home building and the prospect of further job growth,” said Sebastian.

“On the other side of the ledger, wage and price growth is low, consumer spending is fluky, home price growth is slowing and the Aussie dollar remains firm.”

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.