Reserve Bank keeps interest rates at record low of 1.5pc

Updated

The Reserve Bank of Australia has maintained its firmly neutral stance, holding the official cash rate at the historic low of 1.5 per cent.

It is the 13th consecutive hold since the RBA made its last move, a 25 basis point cut in August 2016.

The decision was widely expected, with the market pricing in no chance of a move ahead of the meeting, and none of the leading market economists forecasting a change.

The market has priced in a full 25 basis point rise by July next year as the next move from the RBA.

The statement accompanying the decision from RBA governor Philip Lowe was generally more upbeat about the economy, but sounded a warning on the ongoing strength of the Australian dollar.

While Dr Lowe noted the appreciation since mid-year was largely due to a lower US dollar, it was having an unwelcome impact, particularly in keeping inflation below the RBA's target band.

"The higher exchange rate is expected to contribute to continued subdued price pressures in the economy," Dr Lowe said.

"It is also weighing on the outlook for output and employment.

"An appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast."

The comments had an immediate impact driving the Australian dollar back below 78 US cents.

Dr Lowe noted in recent months there have been more consistent signs that non-mining business investment is picking up.

"A consolidation of this trend would be a welcome development," he said.

"A large pipeline of infrastructure investment is also supporting the outlook.

"Against this, slow growth in real wages and high levels of household debt are likely to constrain growth in household spending."

Capital Economics Paul Dales said the RBA's growing confidence in the outlook for activity and inflation may mean it will be prepared to signal early next year that it is getting close to raising interest rates.

"We still believe that subdued GDP growth and inflation will force the RBA to keep rates at 1.5 per cent for all of next year, but the risks lie on the upside," Mr Dales said.

AMP Capital's Shane Oliver said the RBA was firmly stuck in neutral, balancing improving global growth and a strong domestic jobs market against low wages growth, low inflation expectations and a slowdown in housing construction.

"Basically the RBA and official interest rates remain stuck between a rock and a hard place," Dr Oliver said.

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

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