June 05, 2014
Why has the RBA left rates as is.... again?
The Reserve Bank of Australia was encouraged by a significant drop in consumer confidence to leave the official cash rate on hold in June.
This is the 10th consecutive month that the cash rate has been left at the historically low level of 2.5%.
This decision by the RBA to leave the cash rate on hold is not surprising to borrowers, given that consumer sentiment plummeted in May.
According to the latest Westpac Melbourne Institute, the Index of Consumer Sentiment fell by 6.8% to 92.9 – the lowest level since August 2011.
This sharp fall is indicative of an unfavourable response to the recent Federal Budget.
As a result of the Budget, according to the Index, 59.2% of Australians said they expect their family finances to “worsen” over the coming 12 months.
The Reserve Bank is likely to leave the cash rate on hold for the foreseeable future as a result of the significant amount of criticism that has been aimed at the Federal Government’s Budget.
The economist's predictions of interest rate rises in the near future during the months leading up to the Federal Budget, may no longer be the case. Instead, the Reserve Bank is likely to leave rates on hold for some time and observe what happens to consumer sentiment over the coming months.
supporting this notion, the minutes of the Reserve Bank’s May Board meeting suggested that the current accommodative stance of monetary policy was appropriate for some time yet, given the current outlook for the economy and the significant degree of monetary stimulus already in place.
Consumer sentiment aside, all of the other indicators suggest the economy is tracking along quite nicely at the moment. The unemployment rate is sitting at 5.8% for the second consecutive month and dwelling value growth is finally showing signs of a slowdown.
Research conducted by RP Data found dwelling values slid slightly backwards over the month of May, with Australia’s capital cities recording a monthly fall of 1.9%.
Across most of the individual capital cities, dwelling values were also down over the month, led by Melbourne with a 3.6% reduction in values. Over the past three months capital city dwelling values are up 0.7%, the lowest rolling quarterly rate of dwelling value appreciation since the three months ending June 2013.
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