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RBA Interest Rate Unchanged

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RBA ends the year with interest rates unchanged

In a widely expected move, the Reserve Bank of Australia (RBA) in its meeting today decided to keep the official cash rate unchanged at 1.5 per cent for the 16th month in a row. In August 2016, the RBA last cut the cash rate, after an earlier cut to 1.75 per cent in May.

November data from CoreLogic showed value of capital city dwellings fall 0.1 per cent during the month, spreading the slide which started in September and October.

CoreLogic head of research Tim Lawless wrote earlier this week “A housing market in a ‘cooling off’ phase is not unexpected considering the tighter credit conditions, heightened regulatory environment, affordability constraints and subdued consumer confidence.

This downturn in dwelling values is following a similar trajectory which followed the previous major macro prudential policies announcement in December 2014.

This time, it is unlikely there will be a lifeline given to the housing market with cuts to the cash rate. Dr Shane Oliver, AMP Capital chief economist said the RBA is likely to keep the rates on hold until late next year.

He said “While strong business conditions, solid jobs growth, improving global growth and the RBA’s own forecasts for a pick-up in growth argue for an eventual rate hike, ongoing low inflation, record low wages growth, uncertainty around consumer spending, signs that the housing cycle is slowing and the still strong Australian dollar argue against a rate hike”.

RBA governor Philip Lowe said the low-level of interest rates was “continuing to support the Australian economy”.

Lowe said “Australia’s terms of trade are expected to decline in the period ahead but remain at relatively high levels”.

Recent data suggests that the Australian economy grew at around its trend rate over the year to the September quarter. Business conditions are positive and capacity utilisation has increased.

“Employment growth has been strong over 2017 and unemployment rate has declined”, the RBA governor said.

“Inflation remains low, with both CPI and underlying inflation running a little below 2 per cent. The Bank's central forecast remains for inflation to pick up gradually as the economy strengthens. The Australian dollar remains within the range that it has been in over the past two years.”

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