As expected the Reserve Bank has left the cash rate unchanged at 2.5%, where it has been since last August with governor Glenn Stevens ending his statement, as he has done for months now by referring to the need for “a period of stability in interest rates”.
The Australian dollar, which had been trading slightly lower ahead of the RBA meeting, dropped on the news, to below US87.40c, but that was about the only reaction.
The decision didn’t impact what was a very nervous stockmarket yesterday that started strongly with a 26 point rise in the first half hour, only to fall away spectacularly to be down more than 63 points at one stage as banks were sold off.
Cooler heads prevailed and by the close the day’s loss was around 8.7 points, but the trading range yesterday was a very large 90 points, which does indicate a rising level of investor fretting.
What was also clear from the RBA statement was that the central bank remains very cautious about the recent fall in the value of the Australian dollar.
There was a small change in wording from the past few references to the dollar in yesterday’s statement when the governor recognised the 7% fall since the September 2 meeting, but maintained the view that it needs to go lower.
"The exchange rate has declined recently, in large part reflecting the strengthening US dollar, but remains high by historical standards, particularly given the further declines in key commodity prices in recent months. It is offering less assistance than would normally be expected in achieving balanced growth in the economy.”
In the September statement, Mr Stevens said, "The exchange rate, on the other hand, remains above most estimates of its fundamental value, particularly given the declines in key commodity prices. It is offering less assistance than would normally be expected in achieving balanced growth in the economy".
On the house price surge, Mr Stevens’ comments were expanded from "Credit growth has picked up a little, including most recently to businesses. The increase in dwelling prices continues” in the September statement, to in yesterday’s statement "Credit growth is moderate overall, but with a further pick-up in recent months in lending to investors in housing assets. Dwelling prices have continued to rise over recent months.”
