Published: Wed, March 07, 2018
Economy | By Melissa Porter

RBA Left Cash Rate Unchanged At 1.5% As Property Markets Cooled

RBA Left Cash Rate Unchanged At 1.5% As Property Markets Cooled

The Reserve Bank of Australia has left the cash rate at a record-low 1.5 per cent, as low wage growth and inflation put the board in a holding pattern for the 19th month in a row.

He said the RBA expects the Australian economy to grow at a faster rate in 2018 than it did in 2017, though inflation is expected to rise only slightly to just above two per cent. The rate has remained at this level since August 2016, when it was reduced from 1.75 per cent.

In a survey of brokers, Hashching found that 93.9% believed the interest rates would remain on hold in March, with 5.3% expecting an increase.

Eighty-six percent of experts and economists think when the rate eventually budges, it will be in an upward direction.

There is a 40% implied probability of a rate hike in November 2018 and an 80% implied probability of a rate hike in February 2019 but not at any point is a rate hike fully price.

In his statement, RBA governor Philip Lowe said slow inflation and a softening housing market did not justify an increase for March.

Mr Lowe has yet to oversee an interest rate move, and with each passing month he extends his record as the longest-serving governor not to do so.

The low level of interest rates is continuing to support the Australian economy.

"Just as we did not move in lock-step on the way down, we don't need to do so in the other direction". He also expects a slowing property market to weigh on confidence.

"The lack of wage pressures has been a focus of recent RBA commentary, and the recent 4Q print of 0.6%q/q is unlikely to change that view".

"Meanwhile, net exports look to have subtracted a whopping 0.8% from growth, with exports weighed down by declines in rural exports and disappointing outcomes for exports of iron ore and metals, while imports were strong (particularly consumption and intermediate goods) which gels with strength in consumer spending".

That changed on Tuesday during the RBA's monthly interest rate announcement. Long-term bond yields have risen but are still low.

Exchange Rate Climbs on Threat of Global Trade WarThe exchange rate hit the ground running on Monday, capitalising on risk aversion amongst the markets due to US President Donald Trump's latest trade tariff threats and finding some support on an upbeat United Kingdom service sector purchasing managers' index (PMI). Household incomes are growing slowly and debt levels are high.

Yesterday we saw little movement in the NZ swaps curve while NZ government bond yields were higher, with the 10-year rate up 4bps 2.96%, mirroring the gain seen in USA rates during the Friday night session. It is expectations of higher or lower interest rates that dictate the respective fates of the currencies tied to them.

"The Reserve Bank of Australia will nearly certainly leave its policy rate on hold at 1.50% at its policy meeting and it will probably continue to signal that there is little chance of a near-term rate hike either".

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