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RBA’s June decision keeps rates unchanged, but for how long?

The Reserve Bank of Australia has left official interest rates unchanged at 4.5 percent after its June board meeting, but how long before we see another change?

Reserve Bank June Interest Rates DecisionToday’s decision by the RBA is the first month since February this year we have experienced a ‘hold’ decision, indicating the RBA feels a wait and see approach is more appropriate now the cash rate is “around their average levels of the past decade” according to RBA Governor Glenn Stevens.

After six increases to official interest rates in the past 8 months the RBA is adopting a wait and see approach to carefully monitor the lag effect of prior interest rate rises on consumer sentiment and spending as well as the intentions and actions of Australia’s resources sector and the performance of other major advanced economies.

Mortgage Choice senior corporate affairs manager Kristy Sheppard said there is much talk around a break from official interest rate rises of at least two months and economists seem divided as to whether it will rise at all again in 2010.

“No one has a grasp on when the cash rate will move again; some are saying it could be as early as next month while others envision a steady rate until the end of the year,” she said.

RBA Governor Glenn Stevens in today’s announcement indicated that the the Reserve Bank is unlikely to change it’s ‘hold’ position, for now.

“The Board views this setting [‘hold’] of monetary policy as appropriate for the near term.”

In the minutes of the May Reserve Bank Board meeting, Governor Stevens gave the RBA some wiggle room with respect to interest rate increases as the year progressed.

“The Board will continue to assess prospects for demand and inflation, and set monetary policy as needed to achieve an average inflation rate of 2–3 per cent over time.” Governor Stevens said.

This is consistent with today’s announcement, the RBA’s position for the indefinite future is to keep rates on hold at their historical average for the decade (where they are now) with any changes only to come as a result of changes in external factors such as the European Sovereign Debt Crisis, or an increase in inflation beyond the RBA’s target of 2-3 percent.

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David Olsen

David Olsen

An undercover economist and a not so undercover geek. Politics, business and psychology nerd and anti-bandwagon jumper. Can be found on Twitter: <a href="http://www.twitter.com/DDsD">David Olsen - DDsD</a>

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