No need to act

The Reserve Bank of Australia has revealed the decision of today’s monthly board meeting.

In a widely-anticipated move, the RBA decided to keep the official cash rate on hold at its record low of 1.50 per cent, which it has been since August last year.

Jason Back, Managing Director of ALIC said today, ” It was no surprise today the RBA decision to sit and wait. They are in a challenging position with the economy still needing stimulus to gain momentum. This can be done through rate cuts to increase spending and there is still that stubborn Australian dollar stuck at $0.76/0.77 to the USD.

On the opposite side we have CPI figures due next month which may show inflation creeping up and in a prolonged low interest rate environment that has been driving investment borrowings (potentially fuelling speculation) in the property sector (and driving up prices) which would have the RBA raise rates to dampen these issues. But the market also contains 35% being home owners with debt and who don’t want rate increase.

So the RBA has a difficult time ahead, however the private sector (banks) are doing some of the heavy lifting and moving on rates under the watchful eye of APRA and ASIC. So I don’t see the RBA needing to do too much for the next 12 months as the lag indicators all catch up and we get a better idea of the regulators effects on the ‘free’ markets.”

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