The RBA has decided to keep interest rates on hold. The ASX was up over 1 per cent in the early hours of trading on Tuesday before retreating after the announcement from the Reserve Bank of Australia. The ASX jumped on speculation that the RBA would slash interest rates this month. However, the central bank announced on Tuesday that it would not be lowering the interest rate for the time being. The cash rate will remain unchanged at 2.25 per cent.
The board members cited slow growth and an inhibited labour market in Australia as a potential cause for concern. Projections for growth suggest that it will continue to be at a “below-trend pace”, the RBA said. However, the RBA cited accommodative financial conditions internationally as a positive indicator for the global economy. “Financing costs for creditworthy borrowers remain remarkably low,” it said.
Although the Australian economy is facing headwinds amid falling commodity prices and a challenged labour market, the RBA believes it needs more time and data before making a final judgement call. “Further easing of policy may be appropriate over the period ahead, in order to foster sustainable growth in demand and inflation consistent with the target. The Board will continue to assess the case for such action at forthcoming meetings," it said.
Some economist cited the slow transition from the mining investment boom and risk in the property market as reasons to be more bearish on the ASX’s outlook. In particular, an interest rate cut would have the possibility of fueling risks in the housing market even further. The ASX has erased most if its gains following the announcement.