Interest Rates on Hold for June

The RBA today announced at it's latest meeting that the cash rate will remain on hold for June at 2.00%.

Not surprising considering the board only reduced the cash rate last month, but in its decision the RBA noted the main reasons behind leaving rates on hold as:

  1. Strong consumer sentiment
  2. Moderate dwelling growth, and
  3. Ensuring they allow enough time to pass since last month's rate cut, to see what the effects are.

The final reason regarding the effects of last month's rate cut was most prominent.  

Considering the reduction of the cash rate last month to the historically low 2.00% mark, the board will want to make sure enough time has passed to allow the effects of this to truly take hold.

One they are able to see what effect this has on the economy as a whole including employment, inflation and business confidence, they will most likely look to assess the cash rate at that time.

The Westpac Melbourne Institute of Consumer Sentiment index rose by 6.4% in May to 102.4.  This jump in sentiment marks the first time since February that the index has been above 100 - the point where optimists outweigh pessimists.

Furthermore, new data from Core Logic found property price growth may be starting to moderate with dwelling values falling 0.9% throughout May.

This is the first month on month fall since November.  No doubt the RBA would be pleased by this result, as the Board has consistently said the rapid growth in dwelling values across some of the capital cities is a worring trend.

While inflation is benign, and there is continued uncertainty about global growth and markets, there is still reason for the RBA to move the cash rate lower in the future.

For the time being however , it's simply a matter of watch this space.

The next interest rate decision will be made when the RBA meets on July the 7th.

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