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RBA Leaves rates on Hold May 2017

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As economists and traders have predicted, it has come to no surprise the RBA have decided to continue the official cash rate at 1.5 per cent, as it has been for the last eight meetings in a row.

According to the RBA Board, the current position of monetary policy remained unchanged in the latest meeting on Tuesday, 2nd May to continue to be consistent with sustainable economical growth and achieving the inflation target over time.

The surge in housing prices since 2009 has been a contributing factor to high indebtedness of many households in Australia; a topic RBA governor Phillip Lowe is due to address later this week. Lowe maintains that housing market conditions "continue to vary considerably around the country", even though April saw a halt in price growth within Sydney and Melbourne metro areas.

Shane Oliver, chief economist from AMP said "Raising interest rates by 1 per cent or so would certainly address housing affordability...but it would plunge the country into recession. House prices might come down, but people would worry about losing their jobs". Many have been concerned over the housing market, however the RBA maintains the decision has taken account all current available information.

AMP Capital chief economist Dr Shane Oliver commented on the plateau, predicting rates would begin to increase in the third quarter. "Continuing low underlying inflation pressure at a time of very high underemployment, record low wages growth and a still too high Australian dollar means that its way too early to be thinking about raising rates" ("RBA leaves cash rate on hold in May", www.news.com.au).

In contrast, Stephen Koukoulas, from Market Economics (an economic adviser to former prime minister Julia Gillard), has commented that many expect the RBA will most likely cut rather than hike rates in the coming months. Future reports and data releases will be key in determining what the RBA decides in future.

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