Strong business conditions give RBA hope

The Reserve Bank of Australia has decided to leave the official cash rate on hold for the third consecutive month as new data shows business confidence is on the rise.


August 04, 2015

The Reserve Bank of Australia has decided to leave the official cash rate on hold for the third consecutive month as new data shows business confidence is on the rise.

At today's Board meeting, the RBA decided to leave the cash rate untouched at the historically low setting of 2%.

While a few economists had predicted the Reserve Bank of Australia would cut the cash rate this month after inflation came in below the Board's two to three per cent target band range, strong business confidence ultimately encouraged the RBA to leave the cash rate alone.

“Data from National Australia Bank shows business conditions and confidence have benefited from the tax measures targeted at micro businesses in the Federal Budget, with conditions and confidence both rising by 2 points respectively,” Mortgage Choice chief executive officer John Flavell said.

“And it is not just small to medium sized enterprises that are enjoying a renewed sense of optimism, with the data showing positive momentum is broadening across all sectors and businesses. Confidence is now positive for all industries outside of the mining sector, which is something the Reserve Bank would be acutely aware of.”

Mr Flavell said the Reserve Bank would also be acutely aware of what is happening in the property market and would want to avoid increasing housing demand further by lowering rates.

“New research conducted by Core Logic shows property prices climbed 2.8% over the month of July, meaning values have now soared by 11.1% over the past 12 months,” he said.

“Melbourne and Sydney continue to be largely responsible for the overall growth in dwelling values, with the capital cities recording property price growth of 4.9% and 3.3% respectively over the course of July.

“There is no denying that demand for property in both Sydney and Melbourne is hot. In fact, so hot is the demand, especially from investors, that the Australian Prudential Regulation Authority has put a cap on investment lending growth, which has forced many of Australia's lenders to make some sweeping changes to their pricing and policy.

“With so many lenders actively trying to curb their level of investment lending growth, the Reserve Bank would be careful not to incite further property investment demand by lowering rates.”

While Mr Flavell said today's Board decision “made sense”, further rate cuts could not be ruled out in the future.

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