No Christmas rates cheer from RBA

08.No Christmas rates cheer from RBA

Sydney

(Australian Associated Press)

The Reserve Bank has refused to play Santa for homeowners this Christmas.

After holding their final rates meeting for 2015 on Tuesday, RBA board members left the cash rate at a record low two per cent for the seventh consecutive month.

The decision was expected by economists, many of whom believe the RBA will hold off moving rates until well into 2016 or even 2017.

Ahead of the meeting, RBA governor Glenn Stevens had urged economists to “chill out” about rate cuts.

He maintained that relaxed tone in a statement issued after the meeting, noting that while economic growth has been below long-term averages, unemployment is steady, inflation low, business conditions improving and the Aussie dollar weaker.

“At today’s meeting, the board again judged that the prospects for an improvement in economic conditions had firmed a little over recent months and that leaving the cash rate unchanged was appropriate,” he said.

The statement also reaffirmed that the board remained open to a rate cut given the low inflation outlook.

St George bank’s senior economist Janu Chan said while there was little in the RBA’s statement to suggest it would move interest rates in the near term, a lot can happen between now and when the board next meets in February.

Key quarterly economic growth figures are due on Wednesday, followed by inflation data in January.

The US Federal Reserve and European Central Bank are also expected to move rates soon.

“If the RBA were to move rates in the near term, the risk remains that it is likely to be lower rather than higher,” Ms Chan said, adding that she believes rates will be on hold until early 2017.

“A strong GDP outcome released tomorrow will reduce this risk, but there remain questions about the transition from mining investment to non-mining sectors of the economy, particularly over the first half of next year.”

In its statement, Mr Stevens noted the cooling of home prices in the booming property markets of Sydney and Melbourne.

He added that while recent mortgage rate hikes by banks would reduce spending, “overall conditions are still quite accommodative”.

RBC Capital Market’s chief economist Su-Lin Ong believes further cooling in the housing market combined with another side in commodity prices and a strengthening by the Aussie dollar could pave the way for a rate cut in 2016.

“Should these trends continue into 2016, the RBA may be a little less relaxed at its first board meeting for 2016 in February,” she said.

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