RBA cash rate announcement – December 2013

Borrowers miss out on a Christmas rate-cut present as the RBA holds rates again for the fourth consecutive month.

Cash rate decision

The Reserve Bank has again decided to hold the official cash rate of 2.50% at their monthly meeting.

The Board was largely anticipated to hold the rate steady, with the ASX 30 Day Interbank Cash Rate Futures on Monday showing only a 7% chance of rates being slashed to 2.25%.

Many economists and commentators believed that the stabilising Australian dollar and the pickup in the housing industry and other industries such as construction would be the reason behind any decision to hold rates.

In his statement, Governor of the RBA Glenn Stevens pointed to the effects previous rate cuts are having on the economy, particularly on households.

"The easing in monetary policy that has already occurred since late 2011 has supported interest-sensitive spending and asset values. The full effects of these decisions are still coming through and will be for a while yet. The pace of borrowing has remained relatively subdued overall to date, though recently there have been signs of increased demand for finance by households."

Mr Stevens also mentioned the pickup in other interest-rate sensitive markets.

"Housing and equity markets have strengthened further over recent months, trends which should in time be supportive of investment."

Paul Bloxham from HSBC said the Reserve Bank of Australia (RBA) would keep rates on hold in response to some positive signs from the economy.

"We think they're faced with a housing price boom, theres a pickup in housing and construction also going on and actually there are more signs this month that other parts of the economy are also picking up pace, so we think that will leave the RBA on hold next week," he said.

St George economist Janu Chan said that unless circumstances changed dramatically rates would remain on hold for a while.

I think the next rate rise is a bit of a way off, I don't think the RBA will go again, but I think that there's that possibility that they could. If the Fed really delays its tapering and we have Aussie dollar still very high and high from here well into next year, then it's well possible that the RBA could go again,’ she said.

"I think that given that there are the signs of improvement in what the RBA is looking for, like housing and non-mining investment then they'll probably prefer to hold off."

This month’s finder.com.au rate forecast saw all nine commentators correctly predict the RBA holding the rate at 2.5%.

Bob Cunneen - AMP


December forecast

"December: We expect the RBA to stay on hold at 2.5 %.

February: I think that the Reserve Bank's on hold till the middle of next year, their view is that they're starting to see some signs that the low interest rates are getting a response in the economy, so you're seeing a lift in housing prices, building approvals, retail sales and business and consumer confidence measures. So from that point of view it indicates that maybe they're drawing some comfort that the slow patch of the economy won't be as prolonged as maybe they thought at the middle of this year, so they're some positive signs.

Their other concern is that mining invest boom is coming towards a close and today we got some interesting figures on the capital expenditure plan and they indicate that for the next year it sort of plateaus, but it doesn't sharply fall away, so from that point of view it would indicate that that downside risk in terms of business investment has been mitigated."

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