The RBA decided to maintain the cash rate setting of 2.50%. The rate and the RBA’s policy stance have now been on hold since the last rate cut in August 2013. The RBA continues to remain comfortable with a period of stability in interest rates.

The decision was expected by markets given the RBA has continued its rhetoric regarding a period of stability in rates. Specifically mentioned in the RBA’s announcement was growth in the global economy continuing at a moderate pace, with firmer conditions in advanced countries and Chinese growth in line with policymakers’ objectives, with the backdrop of weakening Chinese property markets. Volatility in both bond and equity markets remains unusually low, and markets globally are attaching very low probabilities to any rise in global interest rates or other adverse event over the period ahead.

Locally, resource sector investment spending is starting to decline significantly, with signs of improvement in business conditions and household sentiment, suggesting moderate growth in the economy. The RBA still expects growth to be a little below trend over the year ahead.

The RBA made specific mention that whilst there has been a recent improvement in indicators for the labour market, the unemployment rate has increased recently indicating that there is still plenty of slack in the labour force, with growth in wages continuing to decline and expected to remain relatively modest over the period ahead. This should keep inflation in check.

The RBA also made reference to investors continuing to look for higher returns in response to low rates on safe instruments, the increase in dwelling prices continuing, and the exchange rate remaining stubbornly high and offering less assistance in balancing growth in the economy.

Looking ahead, continued accommodative monetary policy should provide support to demand, and help growth to strengthen over time. We believe the RBA will be on hold for an extended period of time, in line with their rhetoric, considering the economy is still growing below trend, fears of Chinese property collapse have increased, inflation remains under control,  and slack remains in the labour market.

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