The Reserve Bank has decided to keep interest rates on hold at a record low of 2.0 per cent for the 11th consecutive month at its March board meeting.
The announcement is in line with economist’s expectations that the Reserve Bank would not budge from its neutral interest rate stance.
Following the RBA’s previous announcement to leave the cash rate unchanged at its February meeting, academics and economists predicted there would be no movement in the cash rate in the foreseeable future with the majority agreeing that Australia is at the bottom of the cycle.
The central bank hasn't cut rates since last May and upon holding rates steady at its meeting in February, RBA governor Glenn Stevens noted solid domestic economic momentum.
He said the board would judge whether the improvement in labour market conditions was continuing and whether the recent financial turbulence portended weaker global and domestic demand.
Since then, ABS figures have shown the unemployment rate rose to 5.8 per cent in January and businesses have slashed their investment plans for 2016/17 by 19.5 per cent.
Tim Lawless, head of research at CoreLogic RP Data, said the hold decision came as no surprise given labour markets are holding up and housing market conditions have moderated but remained firm.
“The fact that the rate of capital gains has wound down across the housing market and investor activity is reducing from the highs of mid last year are likely to be welcomed developments from the Reserve Ban,” he said.
Based on indices data released today by CoreLogic, capital city dwelling values rose by 1.4 per cent over the most recent three month period and by 7.6 per cent over the past twelve months; a substantial slowdown from the strong housing market conditions that were evident over the first half of 2015.
“If the RBA were to provide another cash rate cut later this year, they probably wouldn’t need to worry too much about over stimulating the housing market; mortgage rates are already higher than a year ago due to the higher capital requirements implemented by APRA and the pace of investment credit growth is tracking well below the 10 per cent speed limit imposed in December 2014,” Lawless said.
He added that with inflation tracking around the bottom of the RBA target range of two to three per cent, the Reserve Bank could work to stimulate the economy by dropping the cash rate further if they see a requirement to do so.
Glenn Stevens, Governor: Monetary Policy Decision
"Recent information suggests that the global economy is continuing to grow, though at a slightly lower pace than earlier expected. While several advanced economies have recorded improved growth over the past year, conditions have become more difficult for a number of emerging market economies. China's growth rate has continued to moderate.
"Commodity prices have declined very substantially over the past couple of years. This partly reflects slower growth in demand but also, in some key instances, large increases in supply. The decline in Australia's terms of trade has continued.
"Financial markets have once again exhibited heightened volatility over recent months, as participants grapple with uncertainty about the global economic outlook and policy settings among the major jurisdictions. Appetite for risk has diminished somewhat and funding conditions for emerging market sovereigns and lesser-rated corporates have tightened. But funding costs for high-quality borrowers remain very low and, globally, monetary policy remains remarkably accommodative.
"In Australia, the available information suggests that the expansion in the non-mining parts of the economy strengthened during 2015 despite the contraction in spending in mining investment. This was reflected in improved labour market conditions. The pace of lending to businesses also picked up.
"Inflation is quite low. With growth in labour costs continuing to be quite subdued as well, and inflation restrained elsewhere in the world, inflation is likely to remain low over the next year or two.
"Given these conditions, it is appropriate for monetary policy to be accommodative. Low interest rates are supporting demand, while supervisory measures are working to emphasise prudent lending standards and so to contain risks in the housing market. Credit growth to households continues at a moderate pace, albeit with a changed composition between investors and owner-occupiers. The pace of growth in dwelling prices has moderated in Melbourne and Sydney and has remained mostly subdued in other cities. The exchange rate has been adjusting to the evolving economic outlook.
"At today's meeting, the Board judged that there were reasonable prospects for continued growth in the economy, with inflation close to target. The Board therefore decided that the current setting of monetary policy remained appropriate.
"Over the period ahead, new information should allow the Board to judge whether the improvement in labour market conditions is continuing and whether the recent financial turbulence portends weaker global and domestic demand. Continued low inflation would provide scope for easier policy, should that be appropriate to lend support to demand."