RBA makes first rates decision of 2016

Written by Staff Reporter Tuesday, 02 February 2016

The Reserve Bank of Australia has announced the result of its monthly board meeting.

 The board caused few surprises by leaving the official cash rate at 2 per cent, where it has been since May 2015.

All 29 economists and commentators surveyed by comparison website finder.com.au predicted today’s result.

The Reserve Bank might have been tempted to reduce interest rates to stimulate the sluggish economy – but with rates already at record lows, it would then have left itself little room to move if the economy weakened further and required a confidence-boosting injection.

BIS Shrapnel senior economist Richard Robinson made a similar point. “Although economic growth is slow, employment growth and unemployment rate are OK. The RBA can afford to wait and keep rate cuts up its sleeve for if growth slows,” he told finder.com.au.

The big question is when the Reserve Bank will make its next move on rates, and whether it will be up or down.

Seven of the survey respondents, or 24 per cent, believe another rate cut is on the horizon – including AMP Capital chief economist Shane Oliver.

“I think that given the emerging softening in the housing cycle, the ongoing mining downturn and renewed global market turmoil that the risks to growth are on the downside, and given very low inflation the RBA should ease again. But I don't think it's convinced just yet,” he said.

Greater Building Society chief executive Scott Morgan said the Reserve Bank could potentially go either way on rates.

“Any change up or down will be influenced by changes in business and consumer confidence, the work government and business does to undertake reforms that boost economic performance, and global economic changes,” he told finder.com.au.

The survey found that 55 per cent of respondents expect rates will remain on hold for the rest of 2016, while 52 per cent expect rates will rise in 2017.

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