RBA leaves official rate at record low

The Reserve Bank of Australia has left its official cash rate unchanged at 2 per cent after its monthly board meeting today.

The decision comes after the RBA reduced the interest rate for the second time this year to a fresh record low on May 5.

“Having eased monetary policy last month, the board today judged that leaving the cash rate unchanged was appropriate at this meeting,” the bank said in a statement released at 2:30pm.

“Information on economic and financial conditions to be received over the period ahead will inform the Board’s assessment of the outlook and hence whether the current stance of policy will most effectively foster sustainable growth and inflation consistent with the target”.

According to the RBA, the available information suggests Australian economy has continued to grow, but at a rate somewhat below its longer-term average.

Household spending has improved, including an increase in dwelling construction, and exports.

However, a key drag on private demand is weakness in business capital expenditure in both the mining and non-mining sectors and this is likely to persist over the coming year.

Public spending is also scheduled to be subdued.

Overall, the economy is likely to be operating with a degree of spare capacity for some time yet.

With very slow growth in labour costs, inflation is forecast to remain consistent with the target over the next one to two years, even with a lower exchange rate.

“In such circumstances, monetary policy needs to be accommodative”.

“Low interest rates are acting to support borrowing and spending”.

Credit is showing moderate growth overall, with stronger lending to businesses and growth in lending to the housing market broadly steady over recent months.

Dwelling prices continue to rise strongly in Sydney, though trends have been more varied in a number of other cities.

The RBA says it is working with other regulators to assess and contain risks that may arise from the housing market.

In other asset markets, prices for equities and commercial property have been supported by lower long-term interest rates.

The Australian dollar has declined noticeably against a rising US dollar over the past year, though less so against a basket of currencies.

Further depreciation seems both likely and necessary, particularly given the significant declines in key commodity prices, said the RBA.