RBA Makes No Change To Interest Rates

The Reserve Bank of Australia (RBA) has left interest rates unchanged in light of a weak domestic economy that’s been propped by global commodity price rise.

The governor of the country’s central bank Philip Lowe retained the cash rate at 1.5 percent, stating that a slowdown in growth is likely at the year end.

The decision was largely anticipated by analysts and industry experts.

In a statement Lowe said,

There continues to be considerable variation in employment outcomes across the country. Part-time employment has been growing strongly, but employment growth overall has slowed. The outlook for business investment remains subdued.

The Australian dollar remained stable at 74.61 U.S. cents after the announcement. The economy is largely seen to have stalled with poor hiring trends. Economists have predicted that the country’s gross domestic product would be down by 0.1 percent for the three-months ending in September. Official data is expected to be released later this week.

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The dropping growth rates along with poor employment and low inflation would have typically supported a rate cut decision, but Lowe said that a cut would have boosted household debt and sent property prices to further highs. The RBA has decided to adopt a wait-and- watch approach for this and a variety of other reasons.

Reasons include the anticipated policy shift by the United States Federal Reserve which is expected to hike domestic interest rates soon. The change would trigger the strengthening of the U.S dollar against the Australian dollar, which could help boost the export sector including education and tourism. Another reason is that the extent of mining investment boom has reached 80 percent capacity and is likely to end soon. This could help improve overall growth.

Referring to earlier rate cuts in August and May, Lowe said that having eased the monetary situation thus far, keeping the rate stable for now would help in sustaining economic growth and achieve the defined inflation target. The inflation rate in Australia was at an average of 1.5 percent during the third quarter of 2016. This is much below the central bank’s target of 2 to 3 percent. This variation is leading to speculation that there might be a rate cut in 2017.

However some experts like Rahul Bajoria, economist at Barclays Plc anticipate a hike. Bajoria stated that the RBA had a high tolerance for low inflation and the resilience of the economy against global shocks is creating an expectation that further easing will be put on hold, unless the Australian dollar appreciates considerably.