RBA Keeps Interest Rates Steady Against The Predictions

RBA Keeps Interest Rates Steady Against The Predictions

Clearing the speculations of the interest rate cut, the Reserve Bank of Australia (RBA) announced today to keep the official cash rate steady at 1.5 per cent for the 30th time.

Australia and New Zealand Banking Group (ASX: ANZ) expected RBA to cut the interest rates by 25 basis points in order to lift inflation. The predictions over the rate cut were raised after the disappointing inflation figures released by the Australian Bureau of Statistics in April for the March quarter. The headline Consumer Price Index stood flat during the quarter, increasing chances of an interest rate cut by the RBA.

The RBA kept the cash rate unchanged but lowered its target for economic growth. The bank lowered its forecast from 3 per cent in 2019 and 2020 to 2.75 per cent.

Last week, the US Federal Reserve also notified about keeping the interest rates unchanged owing to the good economic condition of the United States.

The ASX closed marginally higher relative to the previous day’s closing price but lower than the high of 6,341 reached at noon. The ASX closed at 6295.7 points today, up by 0.2 per cent or 12 points. Yesterday, the Australian Stock Exchange closed in red after US President Donald Trump threatened to raise the tariff on Chinese goods.  This escalated the chances of US-China trade war and spooked the Australian and Asian stock market.

According to the RBA, more substantial unemployment growth is required for the cash rate cut. This means a further improvement in the labour market could help in achieving the targeted inflation.

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In a meeting in April, RBA governor Philip Lowe specified the conditions of the rate cut as a rise in unemployment in trend terms along with difficulty to achieve the targeted inflation over the medium-term. But now he reaffirmed that for further gradual progress, emphasis should be on improvement in both unemployment and inflation.

The Reserve Bank of Australia has slashed its forecast for inflation from 2 per cent to 1.75 per cent in 2019 and from 2.25 per cent to 2 per cent in 2020.

On one side, the Australian economy experienced disappointing inflation during March quarter, but on the other hand, the economy showed a trade surplus of $4.9 billion in March 2019. As per the ABS figures, the retail turnover inched up by seasonally-adjusted 0.3 percent in March of 2019. Both the trade surplus and retail sales figures surpassed the expectations of economists.

However, the housing prices remain a cause of concern for the RBA. The continuous fall in housing prices witnessed over a period of time could affect the household consumption. As predicted by the Securitisation analysts of National Australia Bank Ltd (ASX: NAB), the dwelling values could drop further in major cities of Australia – Sydney and Melbourne. Also, the recent hedonic home value index released by CoreLogic Inc. specified a fall in housing prices across all capital cities of Australia except Canberra in March.


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