Reserve Bank holds interest rates steady at 1.5pc

Posted on April 4, 2017 by | 0 Comments

The Reserve Bank has left interest rates on hold at a record low 1.5 per cent for the eighth month in a row, as it remains torn between a surging housing market and sputtering economy.

The decision came as no surprise, with all 50 economists surveyed by Reuters ahead of the RBA board meeting expecting a steady cash rate.

The key challenge for the RBA is surging home prices across Australia’s major south-eastern centres at the same time as inflation, wages, job creation and economic growth remain subdued.

Hot home prices make it impossible for the Reserve Bank to cut interest rates again, as it would likely further stoke real estate demand, while subdued economic growth and inflation mean the RBA cannot raise rates to deflate what many analysts now agree is a housing bubble.

Reserve Bank governor Philip Lowe has expressed this dilemma in recent speeches and in testimony before Parliament.

However, in his post-meeting statement, Dr Lowe endorsed the recent actions taken by bank regulator APRA to try and stem some of the housing market risks.

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