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RBA keeps interest rates on hold – 5 March 2019

Australian Financial Review.

The official cash rate has been held at its record low of 1.5 per cent for the 28th time in a row suggesting the uncertainty in the economy continues but that a 3 per cent growth target is still achievable.

“The main domestic uncertainty continues to be the strength of household consumption in the context of weak growth in household income and falling housing prices in some cities,” the board said in its statement.

“The central scenario is still for the Australian economy to grow by around 3 per cent this year,” the board said pointing to rising business investment, higher levels of spending on public infrastructure and increased employment.

The market was watching for a shift in tone, particularly when housing indicators suggest the RBA is too optimistic on the outlook for construction.

Governor Philip Lowe is set to address The Australian Financial Review’s 2019 Business Summit in Sydney tomorrow where he will give specific statements on the housing market and the economy.

Expectations of a rate cut have been steadily building with the market pricing in a 52 per cent chance of a 25 basis point cut in the August board meeting.

Westpac chief economist Bill Evans, was the first of the big four’s top forecasters to call for the Reserve Bank to cut interest rates this cycle,- one in August and one in November.

UBS also sees 50 basis points worth of rate cuts in the next year starting with a cut in the fourth quarter.

However the ANU Shadow RBA board has called for the cash rate to remain on hold, because Australia’s economy was not currently showing any clear direction.

Chair of the RBA Shadow Board Dr Timo Henckel said while real wages growth had ticked up marginally, consumer and business indicators paint a mixed picture, and the housing market has extended its slump.

“The Board is 62 per cent confident that keeping interest rates on hold is the appropriate policy, up six percentage points from February,” Dr Henckel said.

Article appeared in The Australian Financial Review on 5 March 2019.

Article written by Matthew Cranston.

 

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