THE Reserve Bank of Australia has left the cash rate on hold for the 14th consecutive month, in a move widely expected.
The cash rate has been kept at a historic low of 2.5 per cent since August last year. The 14-month rate hold is the longest in more than 10 years.
In a statement, RBA governor Glenn Stevens said the Bank expected growth to be a little below trend for the next several quarters.
READ: RESERVE BANK GOVERNOR GLENN STEVENS’ FULL STATEMENT
“In Australia, most data are consistent with moderate growth in the economy,” he said.
“Resources sector investment spending is starting to decline significantly, while some other areas of private demand are seeing expansion, at varying rates.
“Public spending is scheduled to be subdued. Overall, the Bank still expects growth to be a little below trend for the next several quarters.”
Mr Stevens alluded to concerns over the overheated housing market. “Interest rates are very low and have continued to edge lower over recent months as competition to lend has increased,” he said.
“Investors continue to look for higher returns in response to low rates on safe instruments.
“Credit growth is moderate overall, but with a further pick-up in recent months in lending to investors in housing assets. Dwelling prices have continued to rise over recent months.”
Although the Australian dollar had fallen recently, it was still offering “less assistance than would normally be expected in achieving balanced growth in the economy”, he said.
The Australian dollar has taken a dramatic fall in the past month, falling from 94 US cents to a low of 86.43 US cents.
But Mr Stevens said the exchange rate remained high by historical standards.
Glenn Stevens says the RBA expects growth to be a little below trend for the next several quarters.Source:News Corp Australia
JP Morgan economist Ben Jarman said the RBA’s statement showed it was paying close attention to falling commodity prices and China’s weakening property market.
That means interest rate hikes are likely still a way off, he said.
“It seems like that’s well and truly on the backburner, if anything the way that the concerns are evolving towards external issues like Chinese commodity prices suggests they are being more cautious,” Mr Jarman said.
Concerns about a possible housing bubble did not appear to be weighing heavily on the RBA’s mind, he added.
“It seems very premature to jump to the conclusions that housing would be giving the RBA an itchy trigger finger on rate hikes,” Mr Jarman said.
Michelle Hutchison, money expert at comparison website Finder.com.au, said: “All 28 leading experts in our monthly Reserve Bank Survey were precise with their prediction that the Reserve Bank would keep the cash rate unchanged at 2.5 per cent at its board meeting today.”
Ms Hutchison said all 28 experts were now expecting the cash rate to rise next year, after some pushed back their forecasts from the start of the year.
“For instance, six months ago the survey showed almost half of the respondents — five out of 11 — expected the cash rate to start rising this year. Now, all of the experts are betting on a cash rate rise next year, with an average forecast of June 2015.”
Economists surveyed included Michael Blythe from Commonwealth Bank, Savanth Sebastian from CommSec, Paul Bloxham from HSBC, Janu Chan from St. George and Michael Witts from ING Direct.
There has been talk in recent weeks of the RBA introducing “macro-prudential” measures — whereby restrictions are put in place on high-risk lending instead of raising rates — as a way to put the brakes on the real estate market.
In a statement, Loan Market chairman Sam White said: “Broadly we support this way forward. However, we’d urge the RBA not to penalise first home buyers from entering the market, as has happened recently in New Zealand.”