The RBA’s decision to keep the official cash rate on hold at 1.5 per cent was widely predicted by economists.
St George senior economist Janu Chan articulated the popular view that the RBA is currently ‘stuck’ when it comes to interest rates.
“The RBA will be encouraged by the improvement in the labour market, but will still be of the view that there remains spare capacity in the economy. That would prevent any thought of raising rates,” Ms Chan said.
“However, ongoing concerns regarding risks from the housing market and high household debt is preventing any cuts to rates.”
The futures market had ‘no change’ priced in as a near certainty, with the ASX 30 Day Interbank Cash Rate Futures July 2017 contract trading at 98.505 yesterday afternoon (reflecting a 2 per cent chance of a cut to 1.25 per cent).
The ANU’s Centre for Applied Macroeconomics Analysis (CAMA) RBA Shadow Board advocated a ‘hold-and-wait’ policy, attaching a 59 per cent probability to 1.5 per cent being the “appropriate setting”.
“Australia’s economic outlook remains mixed. The unemployment rate unexpectedly fell to 5.5 per cent, while headline inflation remains well contained,” said the Shadow Board’s July statement.
“On the other hand, household debt continues to break new records, raising concerns about a possible housing crash in the major capital cities.”
