RBA holds interest rates at record low 1.5pc

Glenn Stevens’ 110th monetary policy statement was scant on clues to any future interest rate cut.

Glenn Stevens stands in the RBA corridor where portraits of past Governors hang. Picture: Adam Yip/The Australian.

The Reserve Bank has met expectations by keeping rates on hold at the record low 1.5 per cent mark reached in August.

The steady decision allows Governor Glenn Stevens to push toward the end of his reign in typically restrained fashion, with today’s board meeting his last at the helm of the central bank.

Mr Stevens will step down after a decade in the top job on September 17, making way for current deputy Philip Lowe in a long-mooted transition after bringing the cash rate down from 6 per cent to 1.5 per cent during his tenure.

The policy statement was carefully worded — as always — by the outgoing governor, with Mr Stevens essentially taking the prior month’s statement word-for-word aside from the reference to a cut.

The only change of any significance was his decision to omit any reference to housing bubble risks having “diminished” in the wake of recent August data that revealed strong month-on-month price gains in Melbourne and Sydney.

“All this suggests that the likelihood of lower interest rates exacerbating risks in the housing market has diminished,” Mr Stevens said upon announcing the August cut.

The September statement retained the view of moderate price rises over the past year and strengthening lending standards, but left out the aforementioned sentence.

No forward guidance was offered, with the central bank taking its closing statement almost exclusively from the June meeting.

“Taking account of the available information, and having eased monetary policy at its May and August meetings, the board judged that holding the stance of policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time,” Mr Stevens said.

The only alteration to the June meeting was the obvious need to reference the August cut and points to a central bank that is content to keep its options open.

“The policy statement … provides no hint that another rate cut is around the corner,” Capital Economics chief Australian economist Paul Dales said.

“If the inflation data for the third quarter are very weak, the RBA’s hand may be forced in November. But it’s more likely that the next leg down in rates, to 1 per cent, won’t come until next year.”

On inflation the RBA reiterated its view price pressures will remain muted for an extended period.

“Inflation has been quite low. Given very subdued growth in labour costs and very low cost pressures elsewhere in the world, this is expected to remain the case for some time,” Mr Stevens said.

It was a similar story for domestic growth, with the governor saying data showed growth was “continuing”. The statement was more vague than last month, however, which said growth was “continuing at a moderate pace”.

Today’s hold follows a widely anticipated cut in August, with the RBA staying true to recent form in allowing time for the downward revision to filter through to the economy.

Ahead of the meeting, futures markets were pricing in just a 1.5 per cent chance of a cut, while none of the 25 analysts surveyed by Bloomberg anticipated any action from the central bank.

The confidence in a hold meant the Australian dollar was less volatile than usual in the wake of the RBA statement, with the local currency edging down from US76.3c to US76.2c at 2.50pm (AEST).

Australia’s currency has endured intense volatility since Mr Stevens took control of the RBA in September 2006, but currently trades within US1c of where it stood immediately prior to his appointment. Traders have become more bullish on the local economy since the August meeting, with expectations rising that a slowdown in quarterly growth in June will not be enough to stop annual growth from reaching a four-year peak.

Official GDP numbers are due out tomorrow, with Commonwealth Bank tipping quarterly expansion of 0.5 per cent and annual growth of 3.4 per cent.

Such robust numbers would dampen the prospect of a further rate reduction this year, with futures markets showing a slide in probabilities from 50 per cent in early August to just 35.8 per cent ahead of today’s RBA meeting.

In the wake of today’s policy update the probability has inched up to 37.2 per cent.

After 110 meetings in the hot seat, Mr Stevens no longer has to worry about such forecasts. .