Despite Mounting Global Economic Concerns, RBA Holds Again

The Reserve Bank has defied mounting global economic gloom, keeping interest rates on hold for the fifth month in a row and expressing confidence in APRA’s efforts to keep a lid on ­investment lending in the frothy Sydney and Melbourne housing markets. As the International Monetary Fund downgraded its economic growth forecasts yet again, including those for Australia, Reserve Bank governor Glenn Stevens issued almost a carbon copy of his previous month’s monetary statement, whose tweaks if anything suggested even less desire to reduce the 2 per cent cash rate.

The Australian dollar jumped about 0.5 per cent to about US71.2c yesterday on the decision as investors pared back the likelihood of an interest-rate cut. Meanwhile the S&P/ASX 200 index made further modest gains, closing up 0.33 per cent at 5167. “The available information suggests that moderate expansion in the economy continues,” Mr Stevens said, dumping last month’s qualifier of ‘most of’ and once again pointing to the strength of the jobs market. In the only other major change from last month, Mr Stevens suggested APRA’s efforts to dampen the growth of investor housing lending were “helping to contain risks that may arise from the housing market”.

“The signal seems quite clear that it is unlikely that the bank will see the need to substantially revise its growth forecasts and therefore need to further ease rates,” said Westpac’s chief economist Bill Evans. “Arguably the governor’s statement represents the fewest number of changes to the previous month’s statement that we have ever seen,” he added.

The Australian