- 3 Mar, 2015

Rates on Hold as RBA Reviews Last Rate Cut Impact

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eChoice RBA Commentary for March 2015

The RBA have left the official cash on hold at 2.25 percent this month.

This decision was based on:

o Strengthening in China and U.S. economic, but weaker growth in Europe and Japanese economies;

o Australian economic growth being below trend;

o Higher than anticipated unemployment;

o Rises in dwelling prices; and;

o Low inflation.

While many economists are predicting that a further rate cut will be needed to stabilise the Australian economy, the Reserve Bank of Australia (RBA) has left rates on hold in order to assess the impact of last month’s rate cut.

Some Australian economists are suggesting that future rate cuts will be required to continue the downward pressure on the Australian dollar, and to increase consumer confidence. Others, however, believe that further rate cuts cannot occur too quickly as this will encourage home buying, forcing the property market to heat-up. Therefore, waiting before another rate cut will allow the housing market to cool.

RBA governor Glenn Stevens said that the RBA decision was based on growth in the global economy continuing at a moderate pace. The US and Chinese economy was strengthening, whereas the European and Japanese economies were weaker than anticipated. However, it is expected that global growth will continue at a moderate rate over 2015.

Declines in commodity prices, especially oil, are expected to assist global output and to lower CPI inflation rates temporarily. Falls in oil prices are attributed to a greater supply and less demand.

Australian growth is below trend, with domestic demand weak. This has resulted in a higher unemployment rate. However, falls in energy prices are expected to support consumer spending, but less trade may reduce income growth.

Credit growth increased during 2014, with increased investor lending. Dwelling prices have risen strongly in Sydney, but other capitals have been more varied. The bank is continuing to work with regulators to achieve balanced economic growth in this sector.

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