RBA Keeps Interest Rates on Hold

RBA Keeps Interest Rates on Hold

In what was a widely expected decision at its February meeting, the Reserve Bank kept interest rates at their current levels.

The decision did not come as a surprise to market analysts. The reserve bank has very few rate cuts left in its arsenal and while there was some pressure to cut rates further the RBA has adopted a wait and see strategy in line with several conflicting factors.

The RBA  remains reasonably positive about the economic growth prospects for Australia, expecting the economy to grow by about 2.75% this year and by a further 3% in 2021. It also noted an upsurge in the housing market in the second half of 2019 after a suite of government initiatives and the cumulative effect of interest rates cuts. On the flipside it noted that there had been no corresponding rise in other sectors of the market.

Adding to the overall uncertainty are two factors that could have a variable impact upon the overall economy. These are -:

  • The devastating effect of the bushfires and the anticipated hit to the economy, although it has to be noted that in previous years of bushfire the inevitable downturn is followed by a corresponding surge in the next quarter as the effects of rebuilding tend to flow through the economy.
  • The emergence of the coronavirus. The potential impacts of this virus upon the world economy could be huge if the virus continues to spread and mortality rates remain high. Some analysts have even suggested that the coronavirus could be a potential black swan event that could drag the world economy into a deep recession or worse.

With these two largely unknown variables present, the RBA has chosen to keep its powder dry for now. However, most analysts believe that there will be further rate cuts in the coming year with many tipping that there will be a cut as early as May.

With interest rates appearing set to remain low for the foreseeable future, there may be no better time to assess your finance needs. Call Australian Finance Hub today to arrange a free consultation.