The Reserve Bank of Australia has kept the official cash rate steady for a 10th straight meeting and signalled it won’t be in any rush to join offshore banks in moving towards near-term interest rate hikes.
Board members left the overnight cash rate at 1.5 per cent, where it’s been since last August, as was forecast by markets.
In recent months, Australia’s big four banks, along with a number of smaller lending institutions, have regularly raised rates, particularly for interest-only borrowers, effectively tightening monetary policy despite the central bank’s caution. Household debt, new figures show, is at a record high.
Treasurer Scott Morrison said on Monday that he was confident this year’s APRA crackdown on interest-only loans to property investors would ensure a “safe landing” by encouraging households to reduce their overall debt levels.
The dollar fell sharply after the board’s statement was published after it dashed expectations among some traders that they would join the Bank of England and Bank of Canada’s recent shift towards a more hawkish stance.
Instead, the Reserve Bank produced a near carbon copy of the June statement, noting that consumption remains “subdued” because of low wages growth and high levels of household debt.
The bank also noted that global inflation rates have decline recently in response to falling oil prices, and that wage growth was subdued in “most countries, as does core inflation”.
On the more optimistic front, the Reserve Bank said that it expects the economy to “strengthen gradually” and repeated that a rising Australian dollar wouldn’t be helpfull.
The wait-and-see tone of the statement saw the exchange rate fall to US76.32¢ from US76.77¢.
In a repeat of the June statement, the Reserve Bank noted that the housing market varies around the country, but that the stronger markets are showing signs of easing.
“Growth in housing debt has outpaced the slow growth in household incomes,” it reiterated.
“The recent supervisory measures should help address the risks associated with high and rising levels of household indebtedness. Lenders have also announced increases in mortgage rates for investor and interest-only loans.”