The Reserve Bank of Australia has decided to keep the cash rate on hold at 1.5 per cent at its first monetary policy meeting for 2017.
The RBA’s decision was in line with market expectations, with the ASX 30 Day Interbank Cash Rate Futures pricing in a 95 per cent chance of ‘no change’ at 6 February 2017.
Additionally, close to 70 per cent of the ANU Centre for Applied Macroeconomic Analysis (CAMA) RBA Shadow Board putting ‘hold’ as the advisable policy move, based on recent policy developments in the US.
“The policies to be implemented by the Trump administration are yet to be clear but the range of spending proposals on defence and infrastructure, and company and household tax cuts imply very large fiscal deficits and excess demand at a time the Federal Reserve was already likely to be raising interest rates,” said Shadow Board member and ANU CAMA director Warwick McKibbin.
“This suggests rising short-term and long-term interest rates in the US, which inevitably will pull up interest rates in Australia.”
Current housing prices also supported the case of keeping the cash rate on hold, according to Pimco co-head of Asia-Pacific portfolio management Robert Mead.
“Australian house prices have been so strong, and the impact from lowering rates further, if it was deemed to be having an impact on pushing house prices higher, would be an unsavoury thing for the RBA to do,” he said.
“The housing factor would be the biggest driver in terms of our rationale as to why they wouldn’t want to ease further.”
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