RBA holds cash rate for December

The Reserve Bank of Australia has decided to keep the cash rate on hold at 1.5 per cent at its final monetary policy meeting for 2016.

As widely predicted, the RBA has elected to keep the official cash rate at 1.5 per cent.

The result of the meeting is also in line with the futures market, which tracks the movement in the RBA cash rate.

As at 5 December, the ASX 30 Day Interbank Cash Rate Futures December 2016 contract was trading at 98.505, indicating a 2 per cent expectation of an interest rate decrease to 1.25 per cent.

QIC chief economist Matthew Peter was one of a swathe of economists who correctly called the RBA's decision to hold rates.

However, RBA governor Philip Lowe finds himself in a "very constrained space", Mr Peter said.

"Tepid economic activity, lacklustre business investment combined with a weak labour market and low wage growth call for lower interest rates," he said.

"However, an overheated housing market, an improving global economy, rising terms of trade and moderating currency suggest rates should remain on hold or even rise.

"Caught between these countervailing forces, the RBA will remain on hold at their coming December meeting."

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