As we had expected, the RBA has decided to leave the official cash rate unchanged at 2.25%. We believe that the RBA Board has decided to allow last month’s change sufficient time to work through the economy.
With an eye to the housing market, and to the potential actions of the US Federal Reserve, the RBA has decided to be prudent. Janet Yellen’s recent testimony hinted that the US Fed may look to raise rates before June this year, which would have the desired impact in the US Dollar (and hence the AUD) that the RBA would be hoping for.
The housing market – particularly in Sydney – appears to be heating up, and no doubt the RBA Board will have debated intensely the potential impact of another cut on the housing market. A strong building and construction sector is a positive for the economy, and is traditionally a strong employment driver. However, an overheated sector makes it harder for first home buyers to enter the market, and could cause long term pain for the economy if the housing bubble bursts. These will have been issues that the RBA Board will have considered in coming to their decision.
Today’s decision will have been made in an effort to balance the rising property sector with increasing unemployment in other parts of the economy. The recent company reporting season highlighted that big business is performing strongly, and that corporate balance sheets are largely in good shape. Recent short term improvements in commodity prices have provided an improvement in the outlook for the resource sector, while the recovery of fuel prices have an inflationary impact.
Comment from David Lane, director of Wealth Management at Pitcher Partners business advisory