Melbourne Cup Day leaves rates unchanged at 2.5 per cent

By the resi financial blog team, 04 November 2014

Melbourne cup rate update

One of the reasons behind this decision is the unemployment rate, which has been creeping up recently and now stands at 6.1 per cent. It is expected to be some time before unemployment declines consistently.

Meanwhile inflation remains low at around 2.3 per cent, while wages are growing more slowly than inflation.

RBA governor Glenn Stevens again reiterated that while the exchange rate had been trading at lower levels – in part reflecting the strength of the US dollar – the Australian dollar remained above most estimates of its fundamental value, “particularly given the further declines in key commodity prices in recent months”.

“It is offering less assistance than would normally be expected in achieving balanced growth in the economy,” Mr Stevens said. “Looking ahead, continued accommodative monetary policy should provide support to demand and help growth to strengthen over time.”

The global economy is a factor in any rate decision and growth overseas is continuing at a modest pace. While China’s growth has been in line with policymakers’ objectives, weakening property markets there present a challenge.

Commodity prices are also declining, although remain high, while volatility has picked up in some financial markets.

The RBA is trying to manage an economy that has relied to a large extent on the mining construction boom but is now relying on non-mining aspects of the economy.

House-price growth is also under scrutiny and is causing concern in some parts of the country - such as Sydney and Melbourne – although data out this week showed prices were beginning to grow slightly more slowly.

Economists still expect rates to stay in this 2.5 per cent holding pattern for some time to come, with no rises expected until the middle of next year. This should provide comfort to mortgage holders and for those thinking about entering the property market.

Categories: month in review, RBA Update