RBA KEEPS CASH RATE ON HOLD

THE cash rate will remain at its historic low of 3 per cent, the Reserve Bank of Australia (RBA) announced this afternoon.

The widely expected decision gives the RBA room to move in case of any deterioration in demand, with the soft labour market constraining inflation to 2.25 per cent, consistent with the medium term target.

“Looking ahead, with the labour market softening somewhat and unemployment edging higher, conditions are working to contain pressure on labour costs,” says RBA Governor Glenn Stevens in a statement today.

“Moreover, businesses are likely to be focusing on lifting efficiency under conditions of moderate demand growth.

“These trends should help to keep inflation low, even as the effects on prices of the earlier exchange rate appreciation wane.”

The Housing Industry Association says the RBA should be prepared to lower the cash rate further and called for banks to make their own rate cuts.

“Domestic economic signals are mixed and evidence of a sizeable and sustainable new home building recovery remains far from compelling,” says HIA Chief Economist, Harley Dale.

“Under these circumstances the RBA needs to be willing to act quickly to take interest rates lower.”

“Financial institutions could themselves assist domestic economic prospects by providing interest rate relief they held back from businesses and households last year.”

The RBA believes an accommodative stance in monetary policy is appropriate.

“The inflation outlook, as assessed at present, would afford scope to ease policy further, should that be necessary to support demand,” says Stevens