The Reserve Bank of Australia (RBA) has announced that it would keep the cash rate at 1.5 per cent, only two weeks after governor Philip Lowe said more interest rate cuts might be necessary to prevent rising inflation.
“The board judged that holding the stance of policy unchanged … would be consistent with sustainable growth in the economy and achieving the inflation target over time,” the RBA stated.
“The bank’s forecasts for output growth and inflation are little changed from those of three months ago,” Dr. Lowe said in a statement on Friday.
“Over the next year, the economy is forecast to grow at close to its potential rate, before gradually strengthening. Inflation is expected to pick up gradually over the next two years.”
The RBA also expected commodity prices to stabilise after inflating by 9.5 per cent in October.
Economists expect the rate to remain on hold, at least through 2017.
“Moving forward, if domestic economic data remains strong, there should be no reason for the Reserve Bank to change their stance on monetary policy,” said John Flavell, chief executive at Mortgage Choice. “As such, the cash rate could be left on hold at 1.5 per cent for the foreseeable future.”
“Even though the underlying inflation rate is still below the RBA’s target rate, ‘keeping its powder dry’ is absolutely the right monetary policy decision for the moment,” said Brendan Rynne, chief economist at KPMG. “Waiting for a clearer picture of which way the local and international economic forces are moving is smart.”