RBA holds cash rate at 1.5pc amid drought concern

THE Reserve Bank has left the cash rate unchanged at 1.5 per cent for the 24th month in a row, with RBA governor Philip Lowe adding the drought affecting large parts of the country to his list of concerns.

Dr Lowe said weak household spending remained a source of uncertainty for the economy and a factor in the RBA board’s decision to leave the official interest rate at its current record low. The RBA boss also mentioned the drought that is affecting eastern Australia, saying it has “led to difficult conditions in parts of the farm sector”.

Dr Lowe also said the annual inflation rate is now expected to be 1.75 per cent – outside the preferred two to three per cent target band – as a result of one-off declines in some prices in the September quarter.

Currently headline inflation is running at 2.1 per cent over the past year, he said, and the forecast is for inflation to be higher in 2019 and 2020 than it is at present.