New year starts with an unchanged cash rate

72The Reserve Bank of Australia (RBA) has left the cash rate at 2.5 per cent, following a meeting on February 4.

The decision was explained in a statement released the same day by RBA Governor Glenn Stevens.

Accommodative financial conditions

This result will please investors and first time home buyers, who may be able to continue to benefit from ongoing low interest rates.

The statement also noted the increase in dwelling prices over the last few months, which is promising for Australian homeowners.

The RBA’s decision was welcomed by the Housing Industry Association (HIA).

HIA Senior Economist Shane Garrett noted that the decision was “widely anticipated by the market”.

“Low interest rates can help to bolster domestic demand in particular,” noted Mr Garrett.

He added that “the recovery in new dwelling investment over the past year is evidence of this”.

Future growth

A declining exchange rate “will assist in achieving balanced growth in the economy” if sustained, according to Mr Stevens.

Though growth was somewhat below trend during 2013, there are “reasonable prospects of a pick-up this year,” according to Mr Stevens.

Growth is predicted to sit below trend for some time, however looking into the long term, it is anticipated that growth will strengthen. The low interest and exchange rates are thought to aid this.

Unemployment may rise somewhat this year before peaking. The unemployment rate in NSW in November was 5.9 per cent, dropping to 5.8 per cent in December (seasonally adjusted), according to the Australian Bureau of Statistics.

Meanwhile, inflation should remain within the RBA’s target of 2 to 3 per cent “over the next two years”. The RBA Board noted that the monetary policy adopted will help foster sustainable growth and meet inflation targets. It also stated that the “most prudent” route of action will likely lead to stable interest rates.

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