Reserve Bank reveals rate decision

The Reserve Bank of Australia has announced the result of its monthly board meeting.

The official cash rate has been left at a record-low 2.5 per cent for the 14th consecutive month, as predicted by a majority of economists.

Twenty-eight economists surveyed by comparison website had forecast the cash rate would remain on hold.

AMP Capital chief economist Shane Oliver told that the housing market was too strong for the official cash rate to be cut, while the economy was too fragile for it to be raised.

The Reserve Bank announced last month that it expected to leave the official cash rate at 2.5 per cent “for the next year at least”.

According to the survey, all 28 economists believe the Reserve Bank will lift the cash rate in 2015, with many expecting interest rates to then keep gradually increasing.

Financial Services Council chief economist James Bond said the Reserve Bank would wait to see how the employment trend settles over the coming months.

“The RBA board will be pleased with the fall in the Australian dollar, and should the currency persist at a lower level, this will give the bank the capacity to raise rates earlier to take the heat out of the housing market,” he said.

ING Direct’s head of treasury, Michael Witts, said the Reserve Bank would be reluctant to increase the cash rate until the Australian dollar dropped well under US$0.90.

Estate Agents have welcomed today’s news from the Reserve Bank that the current cash rate will remain at 2.5 per cent.

LJ Hooker chief executive officer Grant Harrod said the RBA’s policy of stability over the past year has aided the economy by offsetting the fall in mining investment, and he believes the interest rates are likely to remain stable until the end of next year.

Mr Harrod said economic growth should remain at "trend levels" over the next two years, which is partly due to property, including residential construction.

“While buyers are aware rates won’t stay at historic lows forever, like investors, there is continued confidence about the market, which is reflective of the stability in policy,” Mr Harrod said.

“However, while markets such as Sydney and Melbourne have performed well, there are many other markets which have softened or experienced more modest results.”

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