Reserve Bank keeps cash rate on hold at 1.5 per cent

The Reserve Bank has held its fire on interest rates, keeping the cash rate on hold amid the federal election campaign despite widespread expectations it would announce a cut today.

The Reserve Bank has held its fire on interest rates, keeping the cash rate on hold.

The RBA today announced it was keeping the official cash rate on hold at what is already an all-time low of 1.5 per cent.

Growing numbers of economist had expected the RBA to deliver a federal election rate cut at today’s board meeting given inflation has all but stalled and the Australian and global economies are slowing.

CONSUMER CONFIDENCE IN HOLDING PATTERN

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The cash rate has now been on hold at 1.5 per cent since August 2016.

“The board judged that it was appropriate to hold the stance of policy unchanged at this meeting,” RBA governor Philip Lowe said in his statement announcing this month’s decision.

Reserve Bank governor Philip Lowe.

“In doing so, it recognised that there was still spare capacity in the economy and that a further improvement in the labour market was likely to be needed for inflation to be consistent with the target.

“Given this assessment, the Board will be paying close attention to developments in the labour market at its upcoming meetings.”

Many economists expect the RBA to cut the rate at its next meeting given the latest inflation numbers, released last month, show price growth stalled in the three months to March.

Core inflation — the RBA’s preferred inflation measure — came in at 1.4 per cent over the year to March.

That was weakest reading since the series started in 2003 and well below the RBA’s target band of 2 per cent to 3 per cent.

While inflation is well outside the RBA’s target band, the unemployment rate remains low.

The RBA has previously singled out inflation and jobs as the key measures it is looking at in making its decisions.

KPMG Australia chief economist Brendan Rynne said the RBA “was right to resist growing calls to cut interest rates”.

“There were compelling reasons for the RBA to stay its hand with respect to further easing of monetary policy in the immediate future,” Mr Rynne said.

“I believe rates should be kept on hold for at least the next few months as more data emerges.”

He noted that oil prices had fallen late last year, feeding into the weak inflationary reading for the first quarter this year, but they had since risen.

Mr Rynne also said monetary policy “becomes less stimulatory the lower the cash rate”, and “there is something to be said about keeping your powder dry until you really need to use it”.

Since Dr Lowe became RBA governor in Septmeber 2016, the central bank has not moved the cash rate.