RBA cash rate target announcement June 2013

Cash rate held firm at today's RBA meeting.

The RBA has decided to hold rates at 2.75% at their meeting today.

In his statement, Glenn Stevens, Governor of the RBA, said the decision was a response to positive signs from previous rate cuts, improving global conditions and a depreciating Aussie dollar.

"At today's meeting the Board judged that the easier financial conditions now in place will contribute to a strengthening of growth over time, consistent with achieving the inflation target," Mr Stevens said.

“It decided that the stance of monetary policy remained appropriate for the time being."

Many economists and commentators thought the RBA would hold largely as a response to the falling Aussie dollar, which many think will support exchange rate sensitive parts of the economy.

The rate is still the lowest it’s been in 53 years, when it was at 2.89% in January 1960.

The decision to hold was largely seen as a response to activity with the Aussie dollar, which has seen its biggest monthly drop in a year, falling from 103.84 US cents at the beginning of May.

Many economists, like HSBC’s Paul Bloxham, said this drop would do much of the work for the RBA.

Michael Witts, ING Direct’s Head of Treasury, agreed saying: "The currency is around 10% lower over the past month and this will provide a significant boost to the non-resource related export sectors."

He also said the RBA would hold due to a housing sector showing signs of growth, albeit in established dwellings rather than new homes.

"The housing sector is continuing to demonstrate high levels of activity, although this is focused primarily on the established dwellings sector as opposed to new builds," Mr Witts said.

Who picked it?

All but one of the economists finder.com.au spoke with said the RBA would hold this month.

St.George’s Janu Chan said the RBA would hold due to continued domestic worries.

"There are still areas of weakness in the domestic economy and the RBA has been hoping for areas outside of mining investment to pick up," Ms Chan said.

Commsec’s Chief Economist Craig James says the RBA will hold off until August, where we’ll see another rate cut, while NAB’s Alan Oster believes the possibility of another rate cut will come later in November.

Shane Oliver, Chief Economist of AMP, said the RBA would shave another 25 basis in what would be a close decision.

"On the one hand, the RBA may decide to wait because the Aussie dollar has fallen a bit from its highs and it may interpret the business investment figures as being okay," Dr Oliver said.

But Dr Oliver said even though the Aussie dollar has fallen , it still remains strong.

"At the moment it's in the low end of the range it's been in for the last two years, so it's still pretty strong. It's not enough to provide a huge boost to the economy."

How does the RBA decision affect homeowners?

Jeremy Cabral, Publisher of finder.com.au says more Australians are opting for fixed rate home loans as a result of lower interest rates.

Approvals for these home loans are up 6.2% since January.

“Now could be the time for Australians to take advantage of the low interest rate and maximise the savings they can make on their home loan. Seek advice, do your research and act accordingly to get the best deal on your home loan now,” Mr Cabral said.

“There clearly are benefits to a fixed rate home loan but consumers need to weigh up the pros and cons and decipher whether this is the best option for them to suit their financial situation. It’s important not to rush into the decision based on today’s announcement.”

Marc Terrano

Marc Terrano is a Lead Publisher at finder. He's been writing and publishing personal finance content for over five years and loves to help Australians get a better deal.

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