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The RBA leaves rates on hold at 0.75% at December meeting

The Reserve Bank of Australia has left the official cash rate on hold at 0.75 per cent in the final meeting of the year.

Headed into today’s announcement, there was only a five per cent chance of a cut to the cash rate. We’ve already seen three 25 basis point cuts this year, however, there is still the expectation that we’ll see the next cut come in the February 2020 meeting.

RBA Governor Philip Lowe said while there had been significant cuts already this year, the board was monitoring the situation closely.

“Given these effects of lower interest rates and the long and variable lags in the transmission of monetary policy, the Board decided to hold the cash rate steady at this meeting while it continues to monitor developments, including in the labour market,” Governor Lowe said.

“The Board also agreed that due to both global and domestic factors, it was reasonable to expect that an extended period of low interest rates will be required in Australia to reach full employment and achieve the inflation target.

“The Board 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.”

Governor Lowe also suggested the Australian economy appears to have “reached a gentle turning point,” and that there was hope of improved consumer sentiment on the back of rebounding property prices.

“The low level of interest rates, recent tax cuts, ongoing spending on infrastructure, the upswing in housing prices and a brighter outlook for the resources sector should all support growth.”

While today’s result was not unexpected, there is growing uncertainty as to what might happen in 2020. So far the property market has been the big winner, but as yet, the RBA’s easing policy has not translated into economic growth.

Graham Cooke, insights manager at Finder, said quantitative easing will be on the cards if the rate cuts continue to be ineffective beyond the housing market.

“The RBA said they may look to alternative stimulus methods once the rate hits 0.25 per cent.

“We’re only two cuts away from that, and the three cuts of 2019 have failed to stimulate anything beyond the housing market,” Mr Cooke said.

Finsure Managing Director, John Kolenda, said with the cash rate remaining at a record low of 0.75 per cent, the RBA can watch what transpires with the economy over the festive season.

“It looks like the cash rate will be heading further south with the first 25 basis points cut possibly in February,” Mr Kolenda said.

“Although it is not the RBA’s desired position unless they see an improvement in the economy which supports job growth and consumer spending then it is inevitable rates will come down.”

Chief Executive Officer of Mortgage Choice, Susan Mitchell, believes the lacklustre economic data is clearly weighing on the RBA’s thinking.

“In the minutes of the November monetary policy meeting, Reserve Bank board members agreed that a case could be made for further easing of monetary policy, however, a wait and see approach would allow them to monitor the effects of previous cash rate cuts.

“According to the Australian Bureau of Statistics, the unemployment rate rose throughout the month of October to 5.3 per cent – a considerable way off the RBA’s target rate of 4.5 per cent.

Inflation rose 1.7 per cent over the 12 months to September, well below the RBA’s target range of 2-3 per cent and wage growth remain subdued, growing just 0.5 per cent over the September quarter and 2.2 per cent year on year.

“According to the Westpac Melbourne Institute of Consumer Sentiment, sentiment rose in November, following a sharp fall the month prior, when the RBA cut the cash rate.

“History shows that consumers do not respond well to cash rate cuts and given that we are approaching the Christmas sales period, it was reasonable to keep the cash rate on hold this month.

“There is increasing speculation in the market that the RBA could lower the cash rate as low as 0.25 per cent and adopt a quantitative easing (QE) program but Governor Lowe stressed recently that the threshold for undertaking QE in Australia is far off.”

RateCity research director, Sally Tindall, believes that variable mortgage holders have come out in front this year thanks to the RBA, despite no change today.

“Home owners are very much ahead this year – our research shows that the average Australian mortgage holder is now saving an estimated $127 a month thanks to the three RBA cuts this year, even though they weren’t passed on in full,” Ms Tindall said.

“Our research also shows while the average owner-occupier rate has dropped 0.57 per cent in the last year, the lowest rate has dropped by 0.75 per cent.”

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