RBA holds rates ahead of budget

The dollar has wavered after the RBA left rates on hold for an unprecedented 32 months.

The Reserve Bank of Australia building in Sydney. Picture: AAP

The Reserve Bank has left interest rates unchanged after its monthly board meeting.

In a widely-expected decision, the official cash rate remains at a record low of 1.5 per cent ahead of tonight’s federal budget.

The Australian dollar spiked up from US71.06 cents to an intraday high of US71.29c after the statement, but soon fell to an intraday low of US70.82c.

While only one economist surveyed by Bloomberg expected the RBA to cut interest rates at today’s meeting, the central bank gave little hint that it might cut rates as the market expects by September.

In regard to signs that economic growth may undershoot its forecast of 3 per cent for 2019, the RBA said that the “GDP data paint a softer picture of the economy than do the labour market data.”

Nevertheless, the RBA dropped its previous comment that “a pick-up in growth in household income is nonetheless expected to support household spending over the next year.”

Instead, it noted that growth in household consumption is being affected by the protracted period of weakness in real household disposable income and the adjustment in housing markets.

“The drought in parts of the country has also affected farm output,” the RBA added.

“Offsetting these factors, higher levels of spending on public infrastructure and an upswing in private investment are supporting the growth outlook, as is the steady growth in employment.”

Amid a period of stubbornly-low inflation and tepid wages growth, the central bank has now left its monetary policy on hold for an unprecedented 32 consecutive months since August 2016.

The money market is now fully expecting a 25 basis point cut in the cash rate by September and a further cut in the cash rate to 1 per cent next year is seen as highly likely.

Falling house prices, slowing credit growth, weakening business conditions and confidence and a global downturn amid US-China trade tensions may have worsened a rapid slowdown in the Australian economy since 2018.

But while the RBA is widely expected to downgrade its economic forecasts in its Statement on Monetary Policy next month, there were some encouraging signs last month as unemployment hit a near-eight-year low of 4.9 per cent.