Australia’s central bank holds interest rate
SYDNEY: Australia’s central bank entered its third year of policy stability on Tuesday, and a change seems no nearer even as its commercial cousins nudge up their home loan rates to protect profit margins.
The Reserve Bank of Australia (RBA) ended its September board meeting with rates held at an all-time low of 1.50 per cent and signalling a steady policy ahead.
Even though the status quo decision was widely expected, the Australian dollar bounced more than a quarter of a US cent to reverse early losses as Governor Philip Lowe sounded staunchly upbeat about the A$1.8 trillion economy.
“In the first half of 2018, the economy is estimated to have grown at an above-trend rate,” Lowe said.
“Business conditions are positive and non-mining business investment is expected to increase.”
Still, the bank was in no hurry to hike, given wage growth and inflation remain uncomfortably low.
An added reason for caution was a recent increase in mortgage rates by Australia’s No.2 lender Westpac.
Westpac’s move had led interbank futures <0#YIB:> to push back the chance of a hike to early 2020 as traders wagered other banks would follow suit, leading to a de-facto tightening in the market.
However, Lowe did not acknowledge Westpac’s move in his short statement while repeating average mortgage rates were still lower than a year ago. He also appeared comfortable about a slowdown in the housing market, saying there was still competition in the market for good-quality borrowers. “The RBA is cautious by nature, reluctant to take risks, and that is a sound approach in the current climate,” said Callam Pickering, APAC economist for global job site Indeed.