Rates on hold - for now

  • Official rates remain steady
  • Economic outlook deteriorating
  • Future rate cuts likely
  • Sharp end to Sydney and Melbourne housing boom

The Reserve Bank has again decided to leave official interest rates at the record low of 2.0 percent. Rates have now been on hold for nine consecutive months following the last decrease in May last year.

Rates remain on hold despite recent economic data indicating a deterioration of activity both local and international.

The latest US growth figures were disappointing and will likely put on hold a follow-up increase in US interest rates. Higher US rates and a higher US dollar would have put downward pressure on the stubbornly high Australian dollar and improving the competitiveness of exports.   

Concerns regarding overheating Sydney and Melbourne housing markets are now clearly misplaced with Sydney prices falling by record levels over the December quarter.  Melbourne also recorded sharply lower growth rates to end the year with prices growth likely to be modest to moderate at best in most capitals this year.

The Reserve Bank has decided to keep its powder dry over February until data reflecting this year’s economic performance becomes available over the next few months.  

Although rates remain on hold, the prospect remains for a cut sooner rather than later particularly given the growing prospect of a tough forthcoming federal budget.

Dr Andrew Wilson is Domain Group Senior Economist

Dr Andrew Wilson
Tuesday, 2 February 2016

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