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RBA decision to leave interest rates on hold ‘prudent’

Posted on Dec 1, 2015

The RBA has today left official interest rates unchanged at 2.0%, preferring to leave the US Federal Reserve to make the necessary moves to push the AUD lower.

In today’s announcement the Governor, Glenn Stevens, pointed clearly in the direction of Janet Yellen, and joined the 78% of market participants that are anticipating that the Fed will raise official US rates on 16 December.  Today’s statement cited the growth in the global economy, together with moderate expansion in the Australian economy, as reasons to stay the course.

We believe that the decision to remain at 2% is a prudent one for the RBA, as it provides them with additional room to move in 2016 should the economic growth in the early part of the year disappoint.  The AUD is more likely to move based on a strengthening USD rather than a local move.

Underlying economic growth in Australia has been surprisingly resilient over the last 18 months, in spite of the severity of the decline in mining.  The construction, tourism and in parts retail sectors are beginning to pick up some of the slack from the resources sector.

David Lane is director of Wealth Management at Pitcher Partners