Reserve Bank leaves interest rates on hold at record lows

Updated

The Reserve Bank has held the cash rate at a record low 2.5 per cent for the 12th meeting in a row.

The bank last cut rates in August last year, when it lowered the cash rate by 25 basis points.

It is the longest period the bank has kept rates on hold since an equal stint of steady rates between early 2005 and 2006, and CommSec's chief economist Craig James says it is entirely possible that the RBA will break its record for steady interest rates - 15 meetings on hold at 7.5 per cent - set more than 18 years ago.

"The Reserve Bank wants people to get on with life without constantly looking over their shoulders at potential interest rate changes," Mr James wrote in a note on the decision.

"If consumers and businesses have confidence to borrow, then they are more likely to spend, invest and employ."

No economists were surprised by the decision, with all 31 surveyed by Bloomberg expecting rates to stay on hold this month, and most expect rates to remain steady well into next year.

With no change in rates, all the focus is on any changes to the Reserve Bank governor's commentary on the economy and monetary policy outlook.

The fundamental message from Glenn Stevens remained the same - rates are going nowhere in the short term.

"On present indications, the most prudent course is likely to be a period of stability in interest rates," he repeated in his post-meeting statement.

Housing, jobs in the spotlight

However, while the key message did not change, the governor's commentary on the economy was quite different, with some of the changes forced by recent data.

One was a change in the bank's view of the housing market.

Last month, Mr Stevens viewed the increase in Australian dwelling prices as being "slower this year than last year, though prices continue to rise."

However, yesterday's RP Data August home price figures showed a fresh acceleration in home prices, which would have made the RBA's previous statement inaccurate if repeated.

This month the governor substituted that for the curt: "The increase in dwelling prices continues."

It will probably be some time yet before unemployment declines consistently. RBA governor Glenn Stevens

Citi's economists, Paul Brennan and Joshua Williamson, say the RBA governor may have more to say on this issue.

"While the RBA will want to talk carefully around this issue, house prices could come in for more attention by the RBA if there is more activity from investors and repeat buyers in these cities," they wrote in a note.

"Tomorrow's speech by the governor in Adelaide could provide an early opportunity to discuss these issues."

Interestingly, the RBA governor also made mention of Chinese real estate in the context of policymaker's efforts to keep that nation's growth around a 7.5 per cent target, noting that "weakening property markets [are] a challenge in the near term."

Mr Stevens also changed aspects of his commentary on parts of the domestic economy, this month noting "gradually improving business conditions and some recovery in household sentiment."

The governor says this is "suggesting moderate growth in the economy is occurring", while moderate was also the adjective used to describe growth in non-mining business investment.

The bank also addressed the jump in ABS unemployment figures released last month, noting the rise to 6.4 per cent "despite some improvement in most other indicators for the labour market this year."

"The bank's assessment remains that the labour market has a degree of spare capacity and that it will probably be some time yet before unemployment declines consistently," Mr Stevens added.

Topics: money-and-monetary-policy, economic-trends, currency, australia

First posted