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News and discussions from Novus Capital

Reserve Bank holds interest rate steady ahead of Federal election


The Reserve Bank of Australia has kept the official interest cash rate on hold for the 33rd consecutive month, just days ahead of the Federal election.

The rate will remain at 1.50 per cent, where it has sat since August 2016.

Reserve Bank Governor Philip Lowe said today's decision to extend Australia’s longest-ever period of steady monetary policy followed below-target inflation, steady employment growth and a nationwide housing downturn.

"The Board judged that it was appropriate to hold the stance of policy unchanged at this meeting," he said in a statement.

"In doing so, it recognised that there was still spare capacity in the economy and that a further improvement in the labour market was likely to be needed for inflation to be consistent with the target.

"Given this assessment, the Board will be paying close attention to developments in the labour market at its upcoming meetings.

The announcement comes ahead of the Federal election on May 18.

Domain economist Trent Wiltshire said the RBA is “very likely” to cut rates twice in 2019, bringing the cash rate down to a new record low of one per cent.

“The RBA has been reluctant to cut rates despite a slowing economy and weaker than expected inflation due to strong jobs growth and low unemployment," he said.

"But with such low inflation, the RBA has changed to an ‘easing bias’ and will cut rates in the next few months."

Mr Wiltshire said the lower interest rates will boost the housing market and slow further house price falls.

CoreLogic head of research Tim Lawless agreed that a rate cut was likely this year.

“If the cash rate does move lower later this year, a reduction in mortgage rates would provide some support for housing demand, however we may not see quite as much stimulus for housing market conditions that we have seen after previous rate cuts,” he said.

“Generally, housing sentiment remains low and borrower mortgage serviceability is still assessed based on mortgage rates of at least seven per cent.

“Households who already have a mortgage, or prospective borrowers who are able to satisfy lender credit policies will be the winners if interest rates do fall later this year.”

Many economists and analysts tipped a cut after last month's official data showed inflation slowed to zero in the March quarter.

But KPMG Australia chief economist Brendan Rynne was among those tipping the RBA to sit on its hands for a little longer.

Source: The 9 News