RBA Keeps Official Cash Rate At 2%

02.03.16 | Marc Barlow | News

The board of the Reserve Bank of Australia (RBA) met on Tuesday to discuss and review the state of the Australian economy as it stands at the moment, as well as to attempt to predict where it might be going to in the near and distant future.

Part of those discussions revolved around what the official cash rate should be set at, with the outcome being that the board has decided to keep the official rate at 2% for the ninth month in a row.

Commentary from RBA Governor Glenn Stevens regarding this decision echoed his previous January statement that consumer confidence, house prices, jobs, inflation and Australia’s participation in the mining sector continuing to be key factors in any decision made in regards to the official cash rate position.

If any movement on official rates is to be made in the future it could likely be in a downward direction as the RBA looks to stimulate the Australian economy and raise inflation moderately.

Additional Economic Data

There was additional economic data release on Tuesday and earlier on Monday which also came into the RBA’s calculations on the official cash rate.

Figures released by the Australian Bureau of Statistics showed that Australia’s trade surplus for the quarter came in lower than expected with an unexpected rise in imports into the country.

Economists were expecting a 0.3% positive figure for December end but that number has now been revised to a neutral 0% due to the increased number of imports.

The current account deficit has also risen beyond the expected amount with weaker building approvals, corporate profits and inventory results all coming under the spotlight as contributors to the rise.

Jobs and their continued creation will also remain a key focus for the RBA in coming months with the official unemployment rate rising from 5.8% to 6% in January 2016.

Financial Market Reaction

The decision by the RBA board was widely expected and tipped by the financial markets and the Australian dollar received a very modest bump up due to the RBA’s announcement, up to US$0.7165 from its day opening price of US$0.7138.

The RBA’s decision not to move the official rate was useful in protecting the Australia dollar from the weakened data that was released on Tuesday and previously on Monday.

Where To From Here?

The Reserve Bank of Australia will continue to monitor conditions both at home and abroad with continued concerns regarding global growth needing to be observed and addressed accordingly.

With a flow on effect to the jobs and mining sectors, the performance of important trade partners such as China will more than likely impact on the Australian economy and how the RBA continues to manage the official cash rate.

Locally economists remain divided about where the official cash rate is heading with opinion split between a neutral holding position or a lowering of the official rate to 1.75% or 1.5% at some stage throughout the year.

As usual the exact wording of the RBA’s announcement on Tuesday came under close examination from economists with some seeing a subtle change in wording from January’s statement to indicate a softer leaning position being adopted by the Reserve Bank of Australia.