Cash rate remains at 1.50%
What’s the RBA thinking?
The RBA’s “wait and see” approach has rolled over into 2017 with the board, today, deciding to hold the official cash rate steady at the record low of 1.50%.
Motivation for today’s decision comes from recent Australian economic indicators which do not provide any definitive guide as to the overall strength of the economy. In addition, the housing market, Sydney and Melbourne in particular, still has a bit too much heat in it for RBA to move rates just yet.
Key indicators
- Capital city home values rose 0.7% in January and 10.7% over the past year.
- Hobart saw the largest value growth over the past quarter up 5.8% followed by Sydney (2.7%), Melbourne (2.4%) and Perth (2.1%).
- New listings are lower, compared to this time last year, across all capital city markets.
- Nationally, new listings are down -20% and total listings are down -11%, compared to this time last year.
- Hobart has the largest deficit of total listings being -40% lower than last year. This is followed by Canberra (-19%), Melbourne (-14%), Sydney (-11%) and Adelaide (-10%).
- The unemployment rate increased slightly to 5.8% in December 2016.
- Inflation rose 0.5% in the December quarter and 1.5% over the year.
- The Australian dollar fluctuated between US$0.71 and US$0.76 over the past month.
Source: RBA, ABS, CoreLogic
Looking forward
The RBA will be keeping their eye on a number of indicators to determine if the next cash rate movement is up or down. The first is inflation which currently sits at 1.5%, well below the RBA’s target range of 2% to 3%, this needs to strengthen considerably before they increase rates. The second will be house prices, especially in Sydney and Melbourne. The RBA will want to see property price growth moderate before they cut rates.
Given these two conflicting positions, plus the fact that Australian banks lifted interest rates independently of the RBA in late 2016, the most likely scenario is that the RBA holds the official cash rate steady over 2017.
