RBA holds interest rates steady as Stevens departs

The Reserve Bank held interest rates steady after governor Glenn Stevens’s final meeting.

The Reserve Bank has held interest rates steady after governor Glenn Stevens’s final board meeting, and given no hints about the future path of rates under his ­successor Philip Lowe.

In the statement following yesterday’s meeting, Mr Stevens said after rate cuts in May and August, an unchanged benchmark interest rate of 1.5 per cent “would be consistent with sustainable growth in the economy and achieving the inflation target over time”.

The RBA anticipates today’s national accounts will show the economy growing at a healthy 3.25 per cent rate, although underlying inflation of 1.5 per cent remains well below the official target range of 2 to 3 per cent.

Market economists said growth in the final three months of the financial year might prove even stronger than the 0.5 per cent tipped by the central bank after the Australian Bureau of Statistics reported a surprising surge in government spending.

Citigroup economists said the government spending boost would add about 0.5 per cent to quarterly economic growth, ­easily offsetting a fall in the contribution from foreign trade caused by a lift in imports. Household consumption would also make a significant contribution.

After allowing for inflation, non-defence spending by the commonwealth was 10.1 per cent higher than in the same quarter last year. The ABS does not identify the reason for the blowout, but it might be related to the National Disability Insurance Scheme’s start-up.

The economy is also being helped by state governments’ ­infrastructure investment, a rec­ord $10.5 billion in the quarter, 25 per cent higher than a year earlier. The report also shows investment in new defence equipment is starting to lift, with June quarter spending 6.7 per cent higher than a year earlier.

International trade, which was mainly responsible for very strong economic growth of 1.1 per cent in the March quarter, did not repeat that performance. Economists said consumer goods imports had risen strongly while resource export volumes shipments were relatively flat.

However, there was good news for the federal government in the terms of trade — prices received for exports relative to ­prices paid for imports — rising for the first time since 2011. The lift in export prices for coal and iron ore should also translate to stronger company tax collections over the current financial year.

The expected June quarter GDP growth will complete 25 years of unbroken economic expansion for Australia since its last recession ended in 1991.

Most economists expect the Reserve Bank will hold its cash rate at 1.5 per cent at least until after the September quarter consumer price index is released.

Financial markets are trading on the basis that the bank will not cut interest rates again until ­February. National Australia Bank chief markets economist Ivan Colhoun said with both Dr Lowe and his new deputy, Guy Debelle, being internal appointments, it would be surprising if there were any significant changes in the ­approach to interest rates in the short term.