At its meeting today, the Board of the Reserve Bank of Australia (RBA) decided to leave the cash rate unchanged at 1.50%.
In the RBA's statement released after the cash rate announcement, Governor Philip Lowe said the low level of interest rates is continuing to support the Australian economy.
"Further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual," Lowe said in the statement.
The Australian dollar was trading around 76.90 US cents after the RBA made its cash rate announcement, having climbed steadily from 76.60 US cents earlier in the day.
The Australian dollar (AUD) fell in value against the US dollar (USD) by 1.1% in March, according to CommBank currency strategists in a note released earlier in the day.
An appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast, the RBA said in its statement.
In the RBA's statement, Governor Lowe noted:
- equity market volatility has increased from the very low levels of last year
- credit spreads have widened, but remain low
- financial conditions generally remain expansionary
- prices of some of Australia's commodity exports have fallen recently, but remain within the ranges seen over the past year or so
- Australia's terms of trade are expected to decline over the next few years, but remain at a relatively high level
- business conditions are positive and non-mining business investment is increasing
- higher levels of public infrastructure investment are supporting the economy
- stronger growth in exports is expected after temporary weakness at the end of 2017
- housing markets in Sydney and Melbourne have slowed
The Australian economy grew by 2.4% over 2017 and the RBA's central forecast remains for faster growth in 2018.
Australian dwelling values held firm in March, according to a report released today by CoreLogic. Regional values recorded a 0.4% rise during the month, helping to offset a 0.2% fall across the combined capital city markets, the data showed.
CommBank's economics team believes that a period of slower house prices growth and cooler conditions in the housing market is a welcome development after many years of very strong house prices growth and falling affordability.
"A cooling housing market is one more reason, alongside slow wages growth and inflation, for the RBA to keep the cash rate on hold," CommBank said in a note.
Rates steady since August 2016
The last time the cash rate changed was the 0.25 percentage points cut to 1.5% in August 2016.
Before the announcement today, there was a 0% expectation of an increase to 1.75%, according to the RBA Rate Indicator on the Australian Securities Exchange (ASX) website.
The indicator calculates a percentage probability of an RBA interest rate change based on the market determined prices in the ASX 30 Day Interbank Cash Rate Futures.
CommSec's Chief Economist Craig James said in a statement after the announcement that the Reserve Bank remains positive, but an extended period of stable rates appears likely. James forecasts that the next move in rates will be up, but not until later in 2018.
"The Reserve Bank Board continues to believe that the economy will gather pace over the year and that the inflation rate will slowly lift into the 2-3% target band," James said. "But there is nothing in the latest statement that suggests an imminent change in interest rates in either direction. Clearly that is a mark of a healthy economy - it doesn’t need speeding up or slowing down."
Commonwealth Securities Limited ABN 60 067 254 399 AFSL 238814 (CommSec) is a wholly owned but non-guaranteed subsidiary of the Commonwealth Bank of Australia ABN 48 123 123 124 AFSL 234945 and a Participant of the ASX Group and Chi-X Australia.