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Interest rates kept on hold
The move was in line with 16 economists surveyed by AAP who all predicted the cash rate would remain unchanged this month.
Of the 16 economists asked, only three expect the RBA to make a cut before the middle of 2016.
Despite last week’s shock stock market volatility off the back of China’s share market suffering an eight per cent fall, JP Morgan Australia chief economist Stephen Walters doubted the RBA’s stance would be swayed.
"RBA officials are not known for jumping at the first appearance of shadows," Walters said.
"The economy still is growing at a disappointing rate, but labour market outcomes have been decent enough," he said.
Australian dollar
The Australian dollar has slipped south today as China's stock market debacle continues to drive gloom on global equity markets.
At midday on Tuesday, the currency was trading at 71.17 US cents, down from 71.42 cents on Monday.
OM Financial private client manager Martin Rudings said the Aussie continued to be on the back foot following last week's extreme China-driven share market turmoil.
"The Aussie dollar is a proxy China trade. It's probably the country that's got the most to lose from a China slowdown," Rudings said.
House prices
The pace of growth in housing prices across the capital cities has slowed, according to CoreLogic RP Data figures.
This comes after capital city dwelling values increased by more than two per cent in both June and July.
August housing market data together with recent data on investor credit growth would have been welcome news to the RBA when they deliberated on the cash rate setting today, CoreLogic RP Data head of research Tim Lawless said.
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“The slower month of housing data may indicate that the housing boom in Sydney and Melbourne is starting to slow and investment lending is starting to moderate in line with APRA guidelines,” Lawless said.
“Home owners and prospective buyers across Australia will welcome the sustained low interest rate setting which will continue to spur buyer demand and help to offset the effects of softer economic conditions outside of Sydney and Melbourne.”
Consumer confidence
Consumer confidence has risen slightly with an increase in optimism over economic conditions in the next five years offsetting more negative short-term views.
The ANZ/Roy Morgan weekly consumer confidence index rose 0.3 per cent to 113.3 in the week ending August 30, after slipping slightly the previous week. It's the third consecutive week where confidence has remained above its long-term average.
ANZ chief economist Warren Hogan said consumer confidence had been surprisingly resilient given the recent volatility in financial markets.
Governor’s statement
At its meeting today, the Board decided to leave the cash rate unchanged at 2.0 per cent.
The global economy is expanding at a moderate pace, with some further softening in conditions in China and east Asia of late, but stronger US growth. Key commodity prices are much lower than a year ago, in part reflecting increased supply, including from Australia. Australia's terms of trade are falling.
The Federal Reserve is expected to start increasing its policy rate over the period ahead, but some other major central banks are continuing to ease policy. Equity markets have been considerably more volatile of late, associated with developments in China, though other financial markets have been relatively stable. Long-term borrowing rates for most sovereigns and creditworthy private borrowers remain remarkably low. Overall, global financial conditions remain very accommodative.
In Australia, most of the available information suggests that moderate expansion in the economy continues. While growth has been somewhat below longer-term averages for some time, it has been accompanied with somewhat stronger growth of employment and a steady rate of unemployment over the past year.
Overall, the economy is likely to be operating with a degree of spare capacity for some time yet, with domestic inflationary pressures contained. Inflation is thus forecast to remain consistent with the target over the next one to two years, even with a lower exchange rate.
In such circumstances, monetary policy needs to be accommodative. Low interest rates are acting to support borrowing and spending. Credit is recording moderate growth overall, with growth in lending to the housing market broadly steady over recent months. Dwelling prices continue to rise strongly in Sydney, though trends have been more varied in a number of other cities.
The Bank is working with other regulators to assess and contain risks that may arise from the housing market. In other asset markets, prices for commercial property have been supported by lower long-term interest rates, while equity prices have moved lower and been more volatile recently, in parallel with developments in global markets. The Australian dollar is adjusting to the significant declines in key commodity prices.
The Board today judged that leaving the cash rate unchanged was appropriate at this meeting. Further information on economic and financial conditions to be received over the period ahead will inform the Board's ongoing assessment of the outlook and hence whether the current stance of policy will most effectively foster sustainable growth and inflation consistent with the target.
