RBA keeps official interest rates on hold at 1.5 per cent

The Reserve Bank has kept its cash rate on hold at an all-time low in the final board meeting presided over by governor Glenn Stevens before he bows out after a decade that has seen the cash rate drop from 6 per cent to 1.5 per cent.

The decision leaves his deputy, incoming governor Philip Lowe, time to take stock before deciding whether to cut rates again in November, when he'll have the bank's next set of updated quarterly forecasts.

The bank's August cut, from 1.75 per cent to 1.5 per cent, was only partly passed on by the big four banks, giving the RBA plenty of room to cut again.

In deciding to leave rates on hold but leaving open the possibility of another cut, the board took into account weak economic news since the August meeting, including a further hollowing out as part-time work replaced full-time work, weak investment expectation figures pointing to the worst year for private investment since 2010-11, and economic growth figures due out on Wednesday expected to show a drop from 1.1 per cent in the March quarter to 0.3 to 0.5 per cent in the June quarter.

Mr Stevens said recent data suggested overall growth was continuing, despite a large decline in business investment, helped by growth in other areas of domestic demand and exports.

He noted that labour market indicators were mixed, but suggested continued expansion in employment in the near term. Inflation remained low, and was expected to remain so for some time.

"Taking account of the available information, and having eased monetary policy at its May and August meetings, the board judged that holding the stance of policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time," Mr Stevens said in a statement on Tuesday.

Tim Lawless, head of research at the home-price monitoring firm CoreLogic said the RBA would be keeping a keen eye on the housing market, observing that since the May and August rate cuts, many of the key housing indicators had bounced higher.

"Auction clearance rates have returned to the highest reading in more than a year, albeit on lower volumes," he said.

"CoreLogic's hedonic index has seen some acceleration in the rate of capital gain across the already hot Sydney and Melbourne markets and the value of investor housing finance commitments have recently rebounded to the highest levels since August last year.

"In contrast, there has been a consistent wind-down in transaction numbers, which implies market demand may be getting exhausted.

"With monthly indicators of inflation remaining low and the Australian dollar remaining relatively high, there remains a strong chance of another rate cut later this year. The most likely timing will be November when September-quarter inflation data is available. Another low inflation reading combined with a stubbornly high dollar could result in the cash rate moving lower."

06 September 2016 / Sydney Morning Herald