Tuesday 03 March 2015 by Elizabeth Moran Week in review

RBA leaves the cash rate at 2.25%

Prior to the RBA media release, 60% of analysts were predicting the cash rate would be cut yesterday. However, in common with the previous month when the RBA cut the cash rate, the majority were wrong. The RBA announced that it had instead decided to leave the cash rate unchanged at 2.25%

While the cash rate remained unchanged, the RBA hinted that further cuts may be warranted in the months ahead.

The Board judged that, having eased monetary policy at the previous meeting, it was appropriate to hold interest rates steady for the time being. Further easing of policy may be appropriate over the period ahead, in order to foster sustainable growth in demand and inflation consistent with the target. The Board will further assess the case for such action at forthcoming meetings.

Commentary also signalled the RBA’s ongoing concern regarding the housing market and in particular the Sydney, market, stating;

Dwelling prices continue to rise strongly in Sydney...the Bank is working with other regulators to assess and contain risks that may arise from the housing market.

With the spectre of raising interest rates out of question, macro prudential controls to cool the market look to be under consideration.

The other point to note for investors is that the RBA still considers the exchange rate is too high. An effective way to lower it would be to reduce rates in coming months but perhaps when it’s got some macro prudential controls in place and it can do so without adding further fuel to hot property prices.

The Australian dollar has declined noticeably against a rising US dollar, though less so against a basket of currencies. It remains above most estimates of its fundamental value, particularly given the significant declines in key commodity prices. A lower exchange rate is likely to be needed to achieve balanced growth in the economy.

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