Rates remain unchanged at December RBA meeting

By the resi financial blog team, 02 December 2014

Rates remain unchanged at December RBA meeting

The Reserve Bank of Australia left rates unchanged at 2.5 per cent at its December board meeting. This is the 15th straight meeting rates have been left on hold. 

RBA governor Glenn Stevens said inflation was running between 2 and 3 per cent, with recent data confirming subdued rises in labour costs. 

“Although some forward indicators of employment have been firming this year, the unemployment rate has edged higher,” he said. “The labour market has a degree of spare capacity and it will probably be some time yet before unemployment declines consistently.”

As a result, wages growth is expected to remain modest, which will keep inflation within the RBA’s target range.

The strength of the Australian dollar has been a thorn in the side of the RBA for months. While it has weakened recently, Mr Stevens said it still remained above most estimates of its fundamental value, particularly given the significant declines in key commodity prices in recent months. 

“A lower exchange rate is likely to be needed to achieve balanced growth in the economy,” he says. 

Overall, monetary policy remains accommodative; interest rates are very low and have continued to edge lower over the past year as competition to lend has increased. 

Credit growth is moderate overall, but with a further pick-up in recent months in lending to investors in housing assets. Housing prices have continued to rise but there are signs they are moderating.

Looking ahead, the RBA believed continued accommodative monetary policy should provide support to demand and help growth to strengthen over time. 

But while rates remained unchanged at this meeting, there has been talk in the market of late that there may be a couple of rate cuts yet to come. Several forecasters have publicly said that with the heat coming out of the housing market the RBA may not need to rely on tightening monetary policy.

Deutsche Bank is one who said that the high unemployment rate and weakness in the Australian economy could force the RBA’s hand to cut rates next year. 

If this is the case and rates do fall, would-be borrowers might want to take a wait and see approach before fixing their mortgage, or consider taking out a split loan.

 

Categories: December interest rates, month in review, RBA update