Reserve Bank keeps rates on hold at 1.5pc for record 24th month

The RBA board has left interest rates unchanged at 1.5pc, as it eyes the jobless rate falling to 5pc over the next two years.

The Reserve Bank of Australia head office in Sydney. Picture: AAP

The Reserve Bank has kept the official interest rate on hold at 1.5 per cent today, marking the longest period of interest rate stability since the Reserve Bank started targeting inflation in the 1990s.

As widely expected, the Reserve Bank Board kept the official cash rate unchanged, bucking a trend toward high official rates in Europe and the US to ward off inflation, but remained optimistic wage growth would rebound.

“The rate of wages growth appears to have troughed and there are increased reports of skills shortages in some areas,” the governor Philip Lowe said in a statement.

Signs house prices are falling in Sydney and Melbourne alongside stagnant wage growth, high household debt and lukewarm consumer confidence convinced the Board to wait and see for the 22nd meeting in a row.

“Financial markets continue to expect that the cash rate will remain unchanged until at least January 2020,” said Tim Lawless, head of research at Corelogic. “The steady rate setting has a lot to do with stubbornly low inflation, record high household debt, a slack labour market and, more recently, falling dwelling values,” he added.

The Board last changed the cash rate two years ago in August, 2016, cutting it 0.25 percentage points to 1.5 per cent.

“GDP growth is expected to average a bit above 3 per cent in 2018 and 2019. This should see some further reduction in spare capacity. Business conditions are positive and non-mining business investment is continuing to increase,” the governor said. “Further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual,” he added.

The bank’s quarterly monetary policy statement, out this Friday, will provide further detail.

“While the cash rate has remained stable, mortgage rates have been tweaked, the extent to which depends on the borrower type and loan product,” Mr Lawless said, pointing out average standard mortgage rate had fallen by 0.05 percentage points over the two year period. For investors rates have increased 0.30 percentage points.

“Growth in China has slowed a little, with the authorities easing policy while continuing to pay close attention to the risks in the financial sector,” the governor said.

The Bank of England increased its official interest rate to 0.75 per cent last week, following several increases in official interest rates in the US.