Interest rates are unlikely to move any time soon with the Reserve Bank still concerned about the high Australian dollar.
The RBA today left the cash rate at a record low of 2.5 per cent, where it has been since August 2013.
In a statement accompanying the decision, governor Glenn Stevens retained his familiar line that the “most prudent course is likely to be a period of stability in interest rates”.
While acknowledging the currency’s recent depreciation, Mr Stevens said the Australian dollar was still overvalued.
“The exchange rate has traded at lower levels recently, in large part reflecting the strengthening US dollar,” he said. “But the Australian dollar remains above most estimates of its fundamental value, 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.”
CommSec economist Savanth Sebastian said the RBA’s November statement appeared to be a carbon copy of October’s, indicating interest rates would be staying put for a while.
“What it does highlight is that the Reserve Bank is comfortable on the interest rate sidelines and doesn’t believe it needs to let the market know of any significant changes to its views on the economy,” Mr Sebastian said.
He said the RBA appeared to remain uncomfortable with the level of the Australian dollar.
“The Reserve Bank seems more comfortable with the currency being in the low 80s (US cents) than the high 80s and I think that’s something they will continue to discuss in commentary,” he said.
“I think one thing they’ll continue to highlight is that it is hampering the rebalancing efforts across the economy. There’s not much they can do to push down the currency but, certainly, they can continue to jawbone and talk it down.”
The rate has remained unchanged since August 2013, but 12 of the 14 economists surveyed by AAP before this afternoon’s RBA announcement predicted there will be a rate hike sometime in 2015.
HSBC chief economist Paul Bloxham said the record low cash rate was doing its job, but it was also creating risks in the housing market as home prices surged.
“After a long period in which Australia was building mines and too few houses, there is now a strong pipeline of housing construction,” he said.
The RBA is working with regulators on potential changes to lending rules to address the rapid rise in loans to housing investors, who are pushing up prices and making it more difficult for owner occupiers and first-home buyers.
Bloxham said the introduction of new regulations to put a lid on housing prices in Sydney and Melbourne will allow the RBA the keep the cash rate unchanged until mid 2015.
