Here's Why Rates In Australia Are Going To Be On Hold For The Foreseeable Future

Getty / Brendon Thorne

The Reserve Bank Governor Glenn Stevens has just released his statement after this morning’s RBA board meeting which saw the cash rate left on hold for another month at 2.5%.

The market wasn’t expecting any changes so it would have been a big shock if Stevens made a move or substantially changed his language around the stability of interest rates.

The Governor concluded his statement by saying: “On present indications, the most prudent course is likely to be a period of stability in interest rates.”

By leaving rates on hold the Governor delivered a classic ‘on the one hand, on the other hand’ economist statement.

Stevens says growth was firmer early in the year but this was because of exports which have now slowed.

Housing construction is expanding “but resources sector investment spending is starting to decline significantly”. Other sectors are starting to invest but only tentatively.

Firms are waiting for confirmation before they commit to larger spending and government policies (public spending) is going to be “subdued”.

Which adds up to subdued growth “a little below trend over the year ahead”.

Stevens sees signs of improvement in the labour market but unemployment won’t decline for a while and although inflation has risen, in the coming year it should remain “consistent with the target even with lower levels of the exchange rate”.

That is a big statement – the RBA thinks the Aussie dollar will still fall but has said even with inflation at the top of the 2-3% band it won’t impact the inflation outlook. That means he won’t be forced to raise rates by a weaker dollar.

On the Aussie dollar rate the Governor said it remains high by “historical standards” and should fall to assist in balancing out growth within the economy.

But the Governor still thinks growth will strengthen over time and inflation will remain quiet.

So with all of the ‘on the one hand, on the other hand’ comments that litter the statement the only conclusion the Governor and the market can make is that rates in Australia won’t be moving any time soon.

It took the RBA Governor 480 words to say what we knew he really meant – for the Australian economy, consumers and business “the most prudent course is likely to be a period of stability in interest rates”.

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