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RBA makes cash rate call - April 2016

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

As predicted by the vast majority of experts, the board decided to leave the official cash rate at the record low of 2 per cent, where it has been since May 2015.

Thirty-four out of 35 economists and commentators surveyed by comparison website finder.com.au accurately predicted today’s result, saying there is still not enough scope for the RBA to change the cash rate, despite the rising Australian dollar.

“The RBA is satisfied that current monetary policy settings are consistent with inflation being within its target band and growth returning to (or remaining at) about its trend pace over the medium term,” independent economist Saul Eslake said.

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“They may have some concern about the currently elevated level of the Australian dollar, were that to continue, but they would need to see whether the recent rise is going to be sustained before contemplating any action in response to it.”

Liberty chief operating officer James Boyle echoed this sentiment and said there is more than one factor that needs to be considered for the RBA to change the official cash rate.

“There are signs that point to a need for action in the future, but none seem severe enough to increase the chances of a move higher than what is implied by the market,” he said.

“Perhaps, for now, monetary policy is in balance, but a major shift in wage inflation, housing construction or unemployment would encourage the RBA to take a different outlook.”

According to the finder.com.au survey, 21 experts predict no cash rate movements for the rest of the year, with the majority of this group forecasting a rate rise in 2017 at the earliest.

Conversely, three experts expect a cash rate fall beyond 2016.

Greater Building Society CEO Scott Morgan believes there are no economic drivers for an increase or decrease any time soon.

“The RBA will wait for more definitive evidence,” he said.

“The economy is not performing that badly [and] GDP figures were OK. The issue is that there are many other factors at play such as upcoming election campaigns, the actions of overseas central banks and worries about the Australian dollar.”

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