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RBA keeps cash rate on hold

RBA keeps cash rate on hold

The Reserve Bank of Australia (RBA) left the official cash rate (OCR) at a record low 1.75% at its board meeting today.

The central bank’s latest policy meeting took place against a landscape of domestic and international uncertainty including Australia's unresolved federal election and the shakeout from Britain's vote to leave the European Union. 

The cloud of political fog failed to sway the RBA, but the board indicated it will assess the health of the local and international economy to chart its next rate move.

In the RBA's statement today, Governor Glenn Stevens said: "Financial markets have been volatile recently as investors have re-priced assets after the UK referendum.

"Any effects of the referendum outcome on global economic activity remain to be seen and, outside the effects on the UK economy itself, may be hard to discern.”

He added that "the global economy is continuing to grow at a lower than average pace. Several advanced economies have recorded improved conditions over the past year but conditions have become more difficult for a number of emerging market economies".

The RBA said the Australian inflation rate was expected to remain low for some time "given the very subdued growth in labour costs and very low cost pressures elsewhere in the world".

CommSec economist Savanth Sebastian said the Reserve today gave no signal of an imminent rate cut but said policymakers have indicated further time is needed to assess both the Australian economy and recent shifts in the global economic landscape.

"Although the central bank did not comment on the Australian Federal election, it is clear that the political uncertainty and the likely impact on economic activity will be watched closely in coming months,” Sebastian said.

Sebastian said CommSec expects the Reserve to cut rates next month. 

"At the August meeting, the Reserve Bank will have digested the latest inflation data (released end July), as well as any further fallout from the UK Brexit decision, July US rate decision, and even a better understanding of the formation of Australian government."

The Australian dollar dropped by 0.4% to US75.10 cents following the announcement, after opening at US75.38 cents this morning.

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.