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Verdict In - RBA Makes Call On Cash Rate August 2018

Posted 7th August 2018

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The Reserve Bank of Australia (RBA) sets the official cash rate target on the first Tuesday of every month except January.

Today the RBA board met and made the decision to keep the official cash rate at its record low of 1.50 per cent, for the 24th consecutive month.

Jo Horton, Senior Economist at St.George Bank, predicted the decision, suggesting that the RBA will leave rates on hold for an extended period:

“Economic growth is solid, business conditions are elevated and jobs growth is strong. There are risks to the global economy, including trade concerns and the domestic economy, including housing. There are downside risks emanating from a tightening in lending standards and recent upward pressure on wholesale funding costs, as recently highlighted by the RBA.” Ms Horton said.

By and large, finder.com.au’s panel overwhelmingly stated that the conditions are just not in place yet to see a rate change.

Chief Economist of Westpac Bank, Bill Evans said:

“The June Quarter CPI, and the revisions to our inflation forecasts are consistent with an RBA on hold out to the end of 2019.” 

Mr Evans also reported in this week’s Westpac Weekly that the more interesting development for the RBA will be the release of the detailed 70 page Statement on Monetary Policy on August 10.

“The Statement is always interesting because it includes the Bank’s updated forecasts for GDP; headline and underlying inflation; and the unemployment rate,” he said.

“In addition there will be an extension of the forecast period to cover the year to December 2020 from the May Statement which only covered forecasts to the end June 2020,” said Mr Evans. “On GDP we expect the Bank will retain its upbeat forecast for growth to December 2018 of 3.25% (recall that the March quarter saw growth of 1.0%) – a view that is particularly underpinned by a positive outlook for employment.”

Some lenders have increased mortgage rates by small amounts, although the average mortgage rate paid is lower than a year ago.

The RBA governor Philip Lowe stated today that conditions in the Sydney and Melbourne housing markets have continued to ease and nationwide measures of rent inflation remain low.

"Housing credit growth has declined to an annual rate of 5½ per cent,"said Mr Lowe. "This is largely due to reduced demand by investors as the dynamics of the housing market have changed. Lending standards are also tighter than they were a few years ago, partly reflecting APRA's earlier supervisory measures to help contain the build-up of risk in household balance sheets. There is competition for borrowers of high credit quality."

Mr Lowe also said that the low level of interest rates are continuing to support the Australian economy.

"Further progress in reducing unemployment and having inflation return to target is expected," he stated, "although this progress is likely to be gradual. Taking account of the available information, the Board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time."

Read the full Statement on Monetary Policy here.

You can also learn more about the RBA from the finder.com.au Reserve Bank Survey™ and how its decisions influence the interest rates banks charge, and learn about the best strategies for home owners and investors when there's a rate cut, hold or rise decision.

 



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