RBA Holds Rates Steady

The Reserve Bank is more hawkish about the economy and inflation in its latest rates decision, indicating interest rates may have bottomed out, economists say.

The RBA left the cash rate at 1.50% at its November board meeting on Tuesday, in line with the expectations of most economists, News.com reported.

RBA governor Philip Lowe said after two cuts already this year, keeping the cash rate steady was the best option to achieve the central bank’s economic growth target and boost the nation’s sluggish inflation numbers.

“Over the next year, the economy is forecast to grow at close to its potential rate, before gradually strengthening. Inflation is expected to pick up gradually over the next two years,” Lowe said in a statement.

CommSec chief economist Craig James said the RBA’s more “hawkish” outlook indicated a view that sluggish inflation had bottomed out and the economy was set to grow at a faster pace.

The Reserve Bank had cut interest rates 12 times since November 2011, from 4.75% to 1.50%, and the easing cycle may be over. “Rates may have bottomed out but that doesn’t mean they are likely to rise within the next year,” James said. “So that means investors have to continue doing their research to find the best investment returns.”

HSBC chief economist Paul Bloxham said it was surprising the RBA made no specific reference to the recent sharp rise in commodity prices, which had the capacity to boost growth economic significantly. Coking coal prices were 210% higher and thermal coal prices 116% higher than in May, while iron ore has risen 63% since January, he said.