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Cash rate still on hold after 5 months

As was widely expected, the Reserve Bank of Australia has decided to leave the official cash rate on hold.

As was widely expected, the Reserve Bank of Australia has decided to leave the official cash rate on hold.

At its October Board meeting, the Reserve Bank said it was “prudent” to leave the cash rate on hold, as new data reveals the Australian economy continues to track along “quite nicely”.

A falling Australian dollar has provided some support for the country's growth and inflation, while business conditions remain relatively stable.

Further, property price growth continues to track upwards – albeit at a slower pace than the beginning of the year.

Data from CoreLogic found property prices across the combined capital cities climbed 0.9% over the month of September – taking values 4% higher over the last quarter.

Melbourne was the standout performer, with the capital city recording dwelling value growth of 2.4%.

On the other hand, Sydney property values stagnated, with prices across the capital city climbing by just 0.1% over the course of the month.

But while Sydney's property price growth was fairly lacklustre this month, the capital city has performed incredibly well over the last 12 months. Moving forward, it is likely Sydney will continue to enjoy growth in property values, as will Melbourne and some of the other capital cities.

And it is not just property prices that are likely to grow and strengthen - the Australian economy is also tracking along fairly well at the moment, providing the Reserve Bank with no urgent reason to change the current monetary policy setting.

If the economy continues to track along as it is currently doing, it is likely that the Reserve Bank will leave rates on hold for the rest of the year.

Of course, if this does happen that doesn't mean there will be no further rate cuts.

What happens both locally and abroad over the next few months will determine the future actions of the Reserve Bank.  If consumer sentiment, business confidence and economic growth perform sluggishly, we may see the Reserve Bank cut rates again.

At present, many economists are predicting the Reserve Bank will change their current monetary policy setting towards the end of 2016. Whether or not this happens however, remains to be seen.

Posted in: Interest rates

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