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Reserve Bank of Australia leaves cash rate on hold

The official cash rate was left at a record-low 2.5 per cent for the 11th consecutive month, as most experts had forecast.

At its July board meeting the RBA again stated that the most likely course of action over the coming months would be a period of stable interest rates sighting how the Australian economy continues to see emerging signs of improvement in non-mining investment, but it will be some time before unemployment drops consistently.

“There has been some improvement in indicators for the labour market in recent months, but it will probably be some time yet before unemployment declines consistently. Growth in wages has declined noticeably. If these and other domestic costs remain contained, inflation should remain consistent with the target over the next one to two years, even with lower levels of the exchange rate”, said governor Glenn Stevens.

The RBA has indicated that it was concerned about the contractionary effect that the high Australian dollar is placing on the economy however this is unlikely to change the RBA’s current ‘wait and see’ approach over the coming months.

The Australian dollar rose to 94.51 US cents after the RBA’s announcement, its highest level since April 10.

“The exchange rate remains high by historical standards, particularly given the declines in key commodity prices, and hence is offering less assistance than it might in achieving balanced growth in the economy,” the RBA said.

As the cash rate enters a 12th month at a record low, consumers continue to be the biggest winners of a low interest rate environment.

Written by

Stephen Bonfield, the Managing Director, previously worked for one of Australia’s major home loan companies as an independent mortgage broker. Steve used this experience to set up his own mortgage broking company - a company that places customer needs at the forefront.

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