RBA retains key interest rate at 1.5%, says no more further rate cuts

By @vitthernandez on
Reserve Bank of Australia
Pedestrians are reflected on a wall of the Reserve Bank of Australia (RBA) head office in central Sydney, Australia, October 3, 2016. Picture taken October 3, 2016. Reuters/David Gray

When Philip Lowe became governor of the Reserve Bank of Australia (RBA) in mid-October, he said more interest rate cuts are needed to battle low inflation. However, on Tuesday, the Australian central bank kept the cash rate at 1.5 percent.

Retaining the key interest rate at its current level “would be consistent with sustainable growth in the economy and achieving the inflation target over time,” the RBA explains its decision. It also say there would likely be no more further rate cuts in the coming months, Sydney Morning Herald reports.

Lowe is expected to release his first quarterly statement on Friday which would forecast better days ahead, similar to the final quarterly statement of former RBA Governor Glenn Stevens released in August. Stevens, after the RBA reduced the benchmark rate for the second time that month, then said the decision aimed to boost the Australian economy and hike inflation which stood at 1.5 percent in the last three quarters.

RBA Governor Philip Lowe Australia's new Reserve Bank of Australia (RBA) Governor Philip Lowe speaks at a parliamentary economics committee meeting in Sydney, September 22, 2016.  Reuters/Jason Reed

At the same time, the RBA repeated concerns about the supply glut of apartments in the Sydney, Melbourne and Brisbane property markets amid rising house prices. RBA’s efforts to ease risks in the housing market by avoiding cutting official interest rates further comes at a time that bank lending to property investors exceeded owner-occupier growth for the first time in more than one year, The Australian reports.

The central bank noted the lower housing turnover, lesser sales and weaker credit growth, but the RBA upgraded its view on the recent hike in house prices to “rising briskly” from “strengthened recently” in some markets.

David Choi, senior investment manager of Aberdeen Asset Management, and Bill Evans, chief economist of Westpac, agree that RBA would likely hold interest rate for some time, likely through 2017.