Cash rate steady

It’s official – the Reserve Bank of Australia has kept the cash rate steady at three per cent at its monthly board meeting today.

The decision was widely expected by economists who now seem split over the possibility of a further cut this year. Some are even predicting the RBA could begin to lift interest rates as early as October.

The mixed signals follow signs monetary policy is gaining traction. Consumer sentiment and the housing market are improving in large part due to low interest rates, while locally real estate agents are reporting stronger levels of enquiry.

The TD Securities Melbourne Institute monthly inflation Gauge increased by just 0.2 per cent in March, following a flat monthly result in February.  In the 12 months to March the inflation gauge increased by 2.1 per cent, the lowest annual inflation outcome in eight months.

Contributing to the overall change in March were price rises for alcohol and tobacco (seasonal), and clothing and footwear. These were offset by falls in fruit and vegetables, household appliances, and audio, visual and computing equipment.

According to Annette Beacher, Head of Asia-Pacific Research at TD Securities, “We expect next month’s RBA Board meeting to be a benign event. We are of the view that the cash rate should remain at three per cent, with the Bank’s clear easing bias remaining on the table.”

The official RBA statement can be found at http://www.rba.gov.au/media-releases/2013/mr-13-06.html