RBA Leaves Official Cash Rates Unchanged

04/03/2014 – The Reserve Bank of Australia (RBA) has today announced no change to the official interest rates. Rates will be kept on hold at 2.50%. The Australian dollar has responded accordingly and is trading at US$89.42.

A survey of 13 economists showed all expected rates to be left unchanged following the statement by Glenn Stevens at the February board meeting, where he said he was not inclined to cut rates from their record low.

There are some key areas that the RBA is keeping a watchful eye on and their respective movements will dictate the RBA’s hand.

  • Inflation – For most of last year, the inflation rate remained soft, giving the Reserve Bank room to lower the cash rate if it needed to. But in the fourth-quarter, the situation changed. Consumer prices jumped, pushing the annual rate of inflation close to the top end of the RBA’s 2 to 3 per cent target band.
  • House Prices – One sector of the economy that has benefited from the record low levels of the cash rate – at 2.5 per cent – is housing. House prices, particularly in the larger capital cities Sydney and Melbourne, have picked up over the past year. Overall growth in Australia’s eight capital cities for 2013 was 10 per cent, according to RP Data
  • Australian dollar – The Reserve Bank’s February meeting statement was noticeable in that it omitted its recent jawboning about an “uncomfortably high” currency. It also dropped the mention, at least in the statement, of the need for a lower exchange rate to support the economy’s rebalancing away from mining-led growth.
  • Business investment – Another key concern for the Reserve Bank is non-mining business investment. As the private sector capital expenditure expectation figures for the 2014-15 financial year (released last week) showed, business investment outside the mining sector is not yet filling the gap expected to be left by the fall-off in spending by resources firms.
  • Jobless rate – February’s board meeting took place before new figures from the Bureau of Statistics showed that the unemployment rate had risen to a decade-high of 6 per cent. Again, this is something that the Reserve Bank has been expecting. The central bank, like the Treasury, is tipping the jobless rate to rise as high as 6.25 per cent this year as the economy continues to shift away from its dependence on mining investment.

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