RBA keeps interest rates on hold for longest stretch in history, no end in sight

The Reserve Bank of Australia has never left interest rates on hold this long, with governor Philip Lowe cementing his place in history as the least active RBA chief in history.

Today’s decision not to touch the record-low 1.5 per cent official cash rate marked the 18th-consecutive meeting with the same outcome.

The rate last changed on August 3, 2016 – the final meeting before Philip Lowe took over as governor from Glenn Stevens. No other RBA governor has spent this long in the job without moving rates.

Philip Lowe now stands as the longest-serving RBA governor to have not moved the official cash rate.Philip Lowe now stands as the longest-serving RBA governor to have not moved the official cash rate. Photo: Brendon Thorne

The previous record of 17 meetings with no change was set 22 years ago, between February 1995 and July 1996, according to data pulled by RateCity. Back then the cash rate was five times higher than it is today.

Expect a lengthy wait before the RBA hikes

The end of the central bank’s holding pattern remains far in the distance, according to CommSec chief economist Craig James, who says the next move will likely be a hike. We’re penciling in November or December for an interest rate hike … but it’s still very much in pencil.CommSec chief economist Craig James

“Our view is that there’s no need for the Reserve Bank to do anything at the moment,” Mr James told Domain.

“The economy is in good shape and just like the Reserve Bank governor has indicated – he’s very transparent – the next move in rates is probably up but it’s probably not going to be for some time.”

While the inflation rate remains below the RBA’s target, and wages growth remains restrained, jobs growth appears strong, participation could be a lot worse, and the housing market is “performing well”, Mr James said.

“We’re still of the view that the next move in rates is up and we’re pencilling in November or December for an interest rate hike, but it’s still very much in pencil. We haven’t reached for the pen and written that firmly in the diary.”

Westpac chief economist, Bill Evans expects no movement from the RBA until well into 2019, noting economists have pushed back their forecasts.

“The latest Bloomberg Survey sees considerable changes in the economists’ views,” Mr Evans said.

“Only one of the 13 continue to expect a hike by the third quarter of this year but eight others are anticipating a move by the first quarter of 2019.

“Only four, including Westpac, expect rates to be on hold through the first quarter. We cannot be sure when the other three are expecting the first move as the survey only extends to the first quarter.”

Other economists, however, are more concerned about how regulators may respond to the concerning findings coming to light amid the royal commission into banking, which will enter round two of public hearings on April 16.

UBS economists George Tharenou and Carlos Cacho voiced concerns a powerful response from APRA to curb inappropriate lending practices could lead to a credit squeeze, or even full “credit crunch”.

House prices could be dramatically influenced in that event, UBS said.

“It must be remembered that house prices are determined by the demand and supply of credit (not the demand for and supply of housing).”

Source Chris Kohler – Domain buisness editor April 3, 2018

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