RBA stays hand on rates for July

Adam Smith 5 July 2016

The Reserve Bank has confirmed experts’ expectations by choosing to hold off on another cash rate cut.

At its board meeting today, the RBA left the official cash rate on hold at 1.75%. Uncertainty with the Federal Election, the fallout from Brexit and inflation below the RBA’s official 2-3% target band failed to force the Reserve’s hand.

The decision confirmed experts’ predictions. The monthly Reserve Bank Survey by finder.com.au found 97% of experts correctly called the Reserve Bank’s rate hold.

Minutes from the Reserve Bank’s May meeting indicated the RBA’s decision to cut the official cash rate to 1.75% was made with some reluctance. While stable unemployment and stronger than expected GDP growth made the case for stable rates, the RBA board indicated that low inflation tipped its decision toward a 25 basis point cut.

Economists and commentators have forecast a cut at the Reserve Bank’s August meeting, with Commonwealth Bank chief economist Michael Blythe predicting the RBA could deal two more cuts before the year’s end. But new figures might have scotched this possibility. The Melbourne Institute Monthly Inflation Gauge spiked by 0.6% in June. Official inflation figures from the Australian Bureau of Statistics are due on 27 July, and could largely determine the RBA’s course of action.

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