Reserve Bank of Australia keeps interest rates on hold

THE Reserve Bank has kept the official cash rate on hold — but a spike in the Aussie dollar shortly before the decision was announced has prompted an ASIC investigation.

Australian dollar banknotes of various denominations are counted in an arranged photograph in Melbourne, Australia, on Saturday, Aug. 17, 2013. Australia’s dollar rose to a three-week high on speculation minutes tomorrow of the Reserve Bank’s meeting this month will signal the central bank is in no hurry to cut interest rates. Photographer: Carla Gottgens/Bloomberg

THE Reserve Bank has kept the official cash rate on hold — but a spike in the Aussie dollar shortly before the decision was announced has prompted an ASIC investigation.

ASIC confirmed this afternoon it would investigate a spike in the Australian dollar shortly before the Reserve Bank’s interest rate decision statement at 2.30pm.

ASIC is also investigating foreign exchange movements shortly before the RBA’s announcements in February and March 2015.

Despite strong speculation the central bank would drop rates today, it announced the cash rate would stay on hold for the second consecutive month at 2.25 per cent.

The Australian dollar rose almost three quarters of a US cent after the decision was announced.

At 2.32pm AEST, the currency was worth 76.77 US cents, up from 76.05 US cents shortly before the RBA’s decision was announced.

The share market fell from its earlier highs, with the S & P at 5934.5 points at 2.33pm AEST, down from 5,960.7 points just prior to the RBA’s decision.

Falling iron ore prices which dropped to a new record low of $46.70 a tonne at the weekend and talk the RBA would drop rates to push the Australian dollar even lower was not enough for them to move the cash rate.

The last change was in February when the cash rate moved from 2.5 per cent to 2.25 per cent.

Latest figures from the RBA show home loan customers are on average more than 24 months ahead on their mortgage repayments.

RBA governor Glenn Stevens today announced rates would not change.

CommSec economist Savanth Sebastian says another cut is on the way — the RBA is just trying to get the timing right.

“The RBA would no doubt be discussing another rate cut — it’s more a tactical decision of when to cut rates, rather than if,” Mr Sebastian said.

“The RBA is tactically thinking, what’s the greatest bang for your buck when it comes to a lift in confidence levels?

“They may feel that cutting next month, after inflation figures are released and just before the federal budget, might be a better outcome to inspire confidence rather than cutting now.”

Mr Sebastian said Tuesday’s decision would have been a “very, very close one”, given the continued strength of the Australian dollar in the face of collapsing iron ore prices.

ANZ senior economist Riki Polygenis said Tuesday’s statement had made it clear that booming property prices in some markets would not hold the RBA back from cutting rates again.

She said the RBA’s line “for the time being” was typically followed by a rate change.

“We’re still expecting a further cut, most likely at the May meeting,” she said.

Originally published as Reserve Bank of Australia keeps interest rates on hold