The Reserve Bank of Australia has kept interest rates on hold at 0.75 per cent at its November meeting.
After three cuts since June which saw the official cash fall from 1.5 per cent, the odds of a cut were low.
Headed into the meeting there was just a five per cent chance of a 25 basis points cut, with Reserve Bank Governor Philip Lowe widely expected to take a wait and see approach.
In the accompanying statement, Governor Lowe suggested that while the economy is not out of the woods just yet, things are improving.
“After a soft patch in the second half of last year, a gentle turning point appears to have been reached,” Mr Lowe said.
“The low level of interest rates, recent tax cuts, ongoing spending on infrastructure, the upswing in housing prices in some markets and a brighter outlook for the resources sector should all support growth.
“The Board will continue to monitor developments, including in the labour market, and is prepared to ease monetary policy further if needed to support sustainable growth in the economy, full employment and the achievement of the inflation target over time.”
Further cuts ahead? – Mortgage Choice
Chief Executive Officer of Mortgage Choice, Susan Mitchell believes that while the November 5 announcement wasn’t a shock, there still could be further cuts.
“The decision from RBA Board members to pause their cutting spree was largely expected by the market and will give previous cash rate reductions time to absorb into the economy,” Ms Mitchell said.
“The latest domestic economic data has provided the Bank with some breathing room.”
“Encouraging data from the labour market played a part in delaying the need for another rate cut.
“Data from the Australian Bureau of Statistics (ABS) revealed that the unemployment rate fell to 5.2 per cent in September.
“And, while this would have been welcome news to policy makers, it is still far off the RBA’s unemployment target of 4.5 per cent, which suggests that another rate cut may be on the cards in the coming months.”
No surprises – CoreLogic
CoreLogic research director Tim Lawless believes that while yesterday’s cut wasn’t a surprise, the RBA will be monitoring economic activity closely.
“Considering the RBA is running out of conventional monetary policy ammunition, the decision to hold the cash rate at the historic low of 0.75 per cent was widely anticipated.
“The decision to keep rates on hold was supported by the latest labour market and inflation readings, which saw the national unemployment rate nudge lower, while annual headline inflation edged slightly higher,” Mr Lawless said.
“Additionally, a rebound in housing values and a rise in buyer activity will hopefully begin to flow through to a gradual improvement in household wealth and spending.
“While several of the key economic indicators have stabilised, no doubt the RBA will be carefully monitoring other indicators which have continued to lose momentum such as consumer confidence, residential construction activity and retail spending.
“Although the cash rate has remained on hold, lenders are becoming increasingly competitive, particularly for high quality borrowers – ie those with low debt relative to their incomes and a responsible track record of savings together with expenses that are in line with their incomes.
“No doubt the lowest mortgage rates since at least the 1950s and improved access to credit following APRA’s decision to adjust the interest rate serviceability floor are contributing to a rebound in housing market conditions.
“While the improved housing market conditions are a positive for broader economic conditions, an increase in speculative activity from property investors or a slip in the quality of lending standards could be the trigger for a new round of macro-prudential policies aimed at maintaining prudent lending standards and keeping a lid on further accrual of housing related debt.”
