Borrowers received some good news that interest rates will be on hold for at least another month but the central bank is still hinting the next move is upwards.
The Reserve Bank of Australia (RBA) decided to keep the cash rate unchanged at 4.75 per cent at its regular monthly board meeting on Tuesday.
The decision was expected, with 12 out of 15 economists surveyed last week by AAP predicting the RBA would keep rates on hold.
RBA governor Glenn Stevens said the consumer price index (CPI) remained within the central banks’ two to three per cent target but the board of the central bank remained “cautious about the medium-term outlook for inflation”.
This suggests the cash rate could be on its way up, as the RBA tries to keep a lid on inflation.
“At today’s meeting, the board considered whether the recent information warranted further policy tightening,” Mr Stevens said in a statement accompanying the interest rate decision.
“On balance, the board judged that it was prudent to maintain the current setting of monetary policy, particularly in view of the acute sense of uncertainty in global financial markets over recent weeks.”
ANZ senior economist Katie Dean said Mr Stevens’ statement suggested the central bank was still contemplating a rate rise.
“The RBA has clearly discussed the possibility of raising rates and has decided not to do so in this meeting,” Ms Dean said.
“While they are quite concerned about the inflation outlook, they’re also concerned about disrupting Australian economic growth, given the heightened global uncertainties at the moment.”
Commonwealth Bank senior economist Michael Workman said much of the recent local economic data had put upward pressure on interest rates.
Mr Workman is still expecting the next rate rise to be in November this year.
“Most of the analyst do expect a rate rise by the end of the year,” he said.
He said the RBA’s decision to keep the cash rate on hold was expected.
St George Bank chief economist Besa Deda said the RBA seemed to be concerned about the strength of the global economy.
“I don’t think that has died down in this board meeting – if anything it seems to have elevated a little bit,” she said.
Ms Deda said the surging local currency may have also contributed to the decision to keep interest rates steady.
“We know that the exchange rate up around these levels is higher than what the RBA had relied on in their May forecast,” she said.
“A high exchange rate is obviously having a tightening impact on the economy.”
The Australian dollar hit a post-float record high at 110.81 US cents on July 27.
On Tuesday, the local unit dropped over half a US cent after the rates decision, while the futures market moved towards favouring an interest rate cut over a rate hike.
