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Reserve bank leaves interest rates at 1.5%

Reserve bank leaves interest rates at 1.5%

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In an unprecedented move, the Reserve Bank has left interest rates at 1.5% for the seventh month in a row. This was the first meeting of 2017 and it has surprised economists that the rates have stayed the same despite concerns about the housing market and the growing economy.

The bank’s governor Philip Lowe has revealed his feelings about the landscape of the Australian economy in a guarded comment.

“We’d like the economy to grow a bit more quickly and we’d like the unemployment rate to come down a bit more quickly than is currently forecast,” Lowe said. “But if we were to try and achieve that through monetary policy, it would encourage people to borrow more money and it probably would put more upward pressure on housing prices and, at the moment, I don’t think either of those two things are really in the national interest.”

Market expectations have predicted a much-delayed rate change for mid 2018. Although the 67 economists surveyed by Reuters were not anticipating a shift, they’re still surprised at the outcome. CoreLogic head of research Tim Lawless said that the Reserve Board had faced a difficult decision.

“They are unwilling to drop rates because this would likely add further fuel to the housing market, yet they don’t want to push rates higher as this will stifle consumption and investment more broadly as well as potentially place some upwards pressure on the Australian dollar,” Lawless said.

The continued rate stability appears to be due to the complexities in the housing market. Although the rate looks stable, the US Federal Reserve are changing their rates. A US rate change would allow the Reserve Bank Australia to raise rates without raising the Australian dollar.


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