Australia's interest rate held at 1.5 pct for 33rd month


Reserve Bank interest rates: RBA meets to decide whether to cut cash rate – live

Pressure seemed to grow on Tuesday when official retail trade data showed spending fell in chain volume terms over the March quarter, but the RBA is waiting to see whether a long hoped for pick up in wages growth eventuates.

The news saw the Aussie dollar jump 0.7% back above 70 United States cents around 70.40 USA cents.

ANZ Head of Australian Economics David Plank tells Ross Greenwood the RBA needs to cut interest rates to improve the economy.

The Reserve Bank has held its fire on interest rates, keeping the cash rate on hold.

In holding the cash rate, the RBA board "recognized that there was still spare capacity in the economy and that a further improvement in the labor market was likely to be needed for inflation to be consistent with the target", it added.

At the same time, the RBA characterized the labor market as "strong" and said it expected the unemployment rate to ease to 4.75 percent in 2021 from current levels of 5 percent where it has stayed for nearly six months now. After 2 strong days, the Aussie is now worth seven-tenths of a penny more at £0.537, but is almost 3 percent below this year's average rate of £0.552.

The RBA forecasts the unemployment rate to be 4.75% in 2021, for 2019 and 2020 the jobless rate is forecast to remain around 5%.

"Given this assessment, the Board will be paying close attention to developments in the labor market at its upcoming meetings", the RBA said.

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For Australian dollar bulls, thank goodness, then, that the Reserve Bank of Australia has seen fit to trample on market expectations for an imminent interest-rate cut - expectations that were stoked by a recent data release showing core inflation at a record low.

Having said that, against the USA dollar, the Australian dollar is expected to be worth between 3.5 and 6.5 percent less by year-end.

Australian economic momentum has slowed since the middle of a year ago and inflation has remained subdued.

But there were further forecasts for a weakening of economic growth associated with a further dip in inflation and a slowing in the rate of fall of unemployment.

Last month, its targets were still 2.0 and 2.25 per cent respectively.

But given the timing of the Federal election and the RBA's focus on the jobs market, Oliver acknowledges it was a close call and in the event while the RBA has yet again lowered its growth and inflation forecasts it has opted to leave rates on hold for the time being.

But the reason the average Australian mortgage rate does not match the RBA cash rate at 1.5% is the need for the banks to account for risk and generate profit for shareholders.

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