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May Interest Rate Update

The Reserve Bank of Australia (RBA) has decided to keep the cash rate on hold for its 19th consecutive meeting.

Staying at 1.50% it sits with most predictions that the rate would continue to stay the same. Some experts had been divided on whether it would increase, as this is the next expected move.

A statement from the RBA said, “The low level of interest rates is continuing to support the Australian economy. Further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual. Taking account of the available information, the Board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.”

According to a survey after last month’s decision, more than 80% of respondents had believed May would be the month the increase occurred.

Steve Mickenbecker, Canstar group executive, financial services, had predicted the rate would hold. He said, “The RBA will want to see wages growth before it bumps up rates, to give borrowers margin to meet higher repayments. The numbers are going to have to show wage increases to go with the jobs growth we are already seeing.”

The Australian National University (ANU) RBA Shadow Board was split in its prediction. It had attached a 49% probability of a rate hold and a 51% probability of a hike.

Chair of the RBA Shadow Board Dr Timo Henckel had said the need for a rate rise was higher because of reports suggesting the federal Budget and fiscal policy will be more expansionary than first thought.

Australia last experienced a rise in official interest rates on 3 November 2010, when the cash rate rose 0.25 points to 4.75%.

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