- RBA keeps rates on hold at 3.25 per cent
- Risks to global outlook on the downside: RBA
- The Australian dollar rises above 104 US cent
THE Reserve Bank of Australia has played it safe and opted to keep interest rates steady.
The official cash rate remains 3.25 per cent.
The move saw the Australian dollar rise above 104 US cents. The currency was trading at 103.69 US cents at 1429 AEDT, just before the decision was announced, and rose to 104.09 US cents by 1439 AEDT.
It finished Monday’s local session at 103.68 US cents.
Futures markets had priced in around a 50 per cent chance of a rate cut.
In a statement accompanying the decision, RBA governor Glenn Stevens says recent inflation data has contributed to the board’s decision.
“At today’s meeting, with prices data slightly higher than expected and recent information on the world economy slightly more positive, the Board judged that the stance of monetary policy was appropriate for the time being,” he said.
Figures released by the Australian Bureau of Statistics in October showed consumer prices rose 2.0 per cent in the year to September while underlying inflation growth was at 2.5 per cent – in the middle of the RBA’s target range.
Mr Stevens said there were positive signs for the global economy from China and the US.
“The United States is recording moderate growth, while recent data from China suggest growth there has stabilised.”
Meanwhile, he said commodity prices remained lower relative to the start of the year but the terms of trade were likely to remain high compared to historic levels.
Macquarie senior economist Brian Redican said the RBA appeared to be taking a more positive view of how Australia’s economy was going.
“They’re definitely back to the ‘glass is half full’ view of things,” he said.
“The key thing is that they’ve moderated their discussion about a peak in the mining boom.
“They’re still saying it will peak in the next year, but the implication is that they’re only going to monitor the economy as that peak approaches – so it’s a very reactive stance, rather than a proactive one.”
He added that given this complacent tone, there was no suggestion that the RBA might cut rates at its next meeting in December, although a significant weakening in economic data could change this.
RBC fixed income and currency strategist Michael Turner said the decision not to adjust the cash rate was surprising.
“The market was 50-50, we thought the odds were in favour of a cut,” he said.
“The CPI (consumer prices index) was obviously a little bit higher than they expected and the global growth stabilised, so they couldn’t see a strong enough case to cut in November.”
The RBA said that growth is close to trend even though there has been falls in commodity prices and a slowdown in the mining sector.
“That’s about about the quarters ahead rather than the data that they were referring to in the statement,” Mr Turner said.
Mr Turner said he expects the RBA to next cut its interest rate early in 2013.
HSBC Australia chief economist Paul Bloxham said the larger than expected rise in consumer prices in the September quarter had motivated the RBA’s decision to keep rates on hold.
“They got a little bit of a surprise on the inflation numbers and the global economy has stabilised a bit so they decided to sit still for the moment,” he said.
Despite futures markets pricing in another cut in either December or February, Mr Bloxham said today’s decision suggested the cash rate may not go much lower.
“We could be nearing the end of this easing cycle.”
The RBA trimmed interest rates by 25 basis points in October, which would have saved the average mortgage holder about $50 a month on a $300,000 loan if the banks had passed the cut on in full.
Financial comparison website RateCity.com.au said despite the RBA keeping the cash rate on hold today variable borrowers have saved almost $700 in repayments for a $300,000 home loan so far this year.
NAB has the lowest standard variable rate of the big four banks at 6.58 per cent, followed by ANZ and Commonwealth at 6.6 per cent. Westpac still has the highest variable rate of 6.71 per cent.
While the announcement of no rate cut is bad news for borrowers, it will be welcomed by savers who have seen the income from their accounts hit a few times this year.
Yesterday, Westpac’s chief executive Gail Kelly called for a rate cut before the end of the year to boost consumer and business sentiment.
But she refused to say whether Westpac would pass on any rate cuts delivered by the RBA.
Today’s decision to keep interest rates on hold has denied retailers a reason to celebrate on Melbourne Cup day, a peak industry group said.
It is the first time in six years the bank has left the cash rate unchanged on Melbourne Cup day.
Australian National Retailers Association chief executive officer Margy Osmond said the bank had “bet against the retail sector” today.
“After the major banks refused to pass on the full cash rate cut in October, giving mortgage holders only a limited boost to their discretionary spending, retailers were hoping their Melbourne Cup winner would come in,” she said.
“Now we are likely to see consumers put the brakes on spending again in the crucial lead-up to the holiday season.”
Ms Osmond said Australians were already watching every penny and keeping the cash rate the same would return them to a saving over spending mentality.
She said retailers were waiting on the federal government’s response to the Low Value Parcel Processing Taskforce report that showed practical ways for overseas businesses to face the same tax obligations as Australian retailers.
“The RBA has not come to our race day party, so now we are waiting on the federal government to play Santa in 2012,” Ms Osmond said.
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