The Reserve Bank of Australia has left the official cash rate on hold at 1.5 per cent at its last meeting for 2016.
In little surprise to the market, which had only priced in a 2 per cent chance of a rate change, new governor Philip Lowe said the decision was made to support the sustainable growth of the economy longer term inflation targets. He also noted there had already been two interest rate cuts earlier this year.
“Low interest rates have been supporting domestic demand and the lower exchange rate since 2013 has been helping the traded sector. Financial institutions are in a position to lend for worthwhile purposes,” he said in a statement.
However, he noted the strengthening Australian dollar could complicate matters.
The terms of trade have risen marginally in recent months after an improvement in commodity prices, however, as Dr Lowe noted, they are far from where they were just a few years ago.
On the housing front, he stressed the market has improved overall, but there’s a regional disparity. He also noted the apartment glut and slow growth in rental yields.
On balance, Dr Lowe said a wait and see approach is necessary until the board meets again on February 7, 2017.