November 04, 2014
Poor sentiment encourages RBA to leave cash rate untouched
Despite a small increase in consumer sentiment this month, the fact that pessimists continue to outweigh optimists has provided the Reserve Bank of Australia with enough reason to leave the official cash rate on hold.
At its Board meeting earlier today, the RBA announced its plans to leave the official cash rate on hold at 2.5 per cent for the 15th consecutive month.
The decision to leave the cash rate untouched was largely unsurprising given how weak consumer sentiment has been of late.
“According to the most recent Westpac Melbourne Institute Index, consumer sentiment rose by just 0.9 per cent in October,”
“This is the eighth consecutive month that the Index has printed below 100, which means pessimists continue to outnumber optimists.
“But while the latest Index clearly shows Australian consumers are caught in a period of ongoing pessimism, the current sentiment reading is higher than expected given that the Australian dollar and the Australian share market have fallen approximately 6 per cent over the last month.”
And it isn’t just consumer confidence that is hovering at low levels. National Australia Bank’s Monthly Business Survey found business confidence lost ground in September.
“According to the report, business confidence is now sitting at a level not seen since before the federal election. Furthermore, business conditions fell in September, taking the Index to its lowest level in four months,”
These disappointing business and consumer confidence conditions have ultimately forced the Reserve Bank of Australia to leave the official cash rate on hold for yet another month.
Moving forward, while the Reserve Bank has talked openly about the potential to introduce certain measures to cool the property market, it is unlikely that one of the measures they will use in the immediate future is a cash rate hike.
“It is now highly unlikely that the Board will raise the cash rate anytime soon as this may further negatively impact consumer sentiment,”
“So, with rates still on hold and set to stay this way for the short term, now is a great time for those with a mortgage to review their home loan and make sure they are still in the most suitable product for their needs.
“Similarly, if you would like to get onto the property ladder, now is a good time to do so.”
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