Blog

Jan07

Interest Rates

Thursday, January 07, 2016


As it had been widely expected the RBA left interest rates on hold at its February meeting.  This marks the ninth month in a row with the cash rate remaining at 2%.
 
While the RBA is less upbeat on the global economic outlook, particularly for emerging countries, and has acknowledged a further slide in commodity prices and reduced appetite for risk it seems more upbeat on the Australian economy at least in terms of information released over the last few months.
 
Inflation continues to be seen by the RBA as remaining low and it has also acknowledged slowing property price gains in Sydney and Melbourne.
 
While the RBA retained an easing bias on the back of the low inflation outlook, the balancing of more positive domestic developments against recent negative global developments clearly enabled it to remain on hold for now. However, the RBA is clearly concerned about recent global and financial market developments and is waiting for more information in order to be able to judge its impact on global growth and the Australian economy.
 
Our view remains the RBA will cut interest rates again this year reflecting the risks around the global economy, weaker than expected commodity prices, still subdued growth in Australia at a time when the contribution from housing construction is slowing, a more dovish Fed threatening a higher Australian dollar and continued low inflation. However, this may not come till April or May.
 
However, whether there is another rate cut or not from the RBA, it’s hard to see rate hikes any time soon.

So the period of low interest rates – with the cash rate at a record low and bank deposit rates at their lowest since the 1950s – is set to continue.


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