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RBA – “Steady as she goes”

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RBA – “Steady as she goes”

Every bit counts

Every bit counts

Image by Gary Kemble (CC BY 2.0)

Every bit counts

Image by Gary Kemble (CC BY 2.0)

Image by Gary Kemble (CC BY 2.0)

Every bit counts

Linton Price, Reporter

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Tuesday last week marked the 20th consecutive month the Reserve Bank of Australia (RBA) has maintained the Australian cash rate at 1.5%. Due to the current state of the housing market in the eastern states and weak inflation, the RBA has not been able to normalise the cash rate.

The move was expected by most in the industry, as the rate has not changed since August 2016. Many predict it won’t change until some time in 2020.

The cash rate is the rate at which the RBA charges its loans to commercial banks, such as Bank of Queensland or Bankwest. The cash rate is reviewed every month by the Reserve Bank Board, and cannot be changed without the RBA’s involvement.

The cash rate controls the supply of money within the economic and banking sectors, helping to control inflation and monetary exchange rates. A change to the cash rate can have ripple effects on the economy felt just days after a significant rate change, including reactions on stock markets and influencing interest rates for the average Australian’s bank loans.

There are several reasons why the cash rate is expected to remain where it is until 2020, the first being the RBA’s belief that overall economic growth will be below their expectations. They predict that wages and inflation will both remain low, as growth will not be strong enough to raise them.

In its quarterly policy statement, the RBA said, “Household income growth has been weak, despite rapid growth in employment; wages growth has been low and compositional change in the labour force has weighed on average earnings per hour. This weakness in income growth has presented a risk to the consumption forecast for some time. The high level of household debt also carries certain risks.”

This means that the average worker’s wage is unlikely to increase any time soon, and that may cause a strengthening in Perth’s housing market, particularly at auction.

Commercial banks are also currently tightening their lending standards, this means the cash rate change from the RBA itself will become less necessary.

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About the Writer
Linton Price, Reporter

Linton is an aspiring writer, studying Writing and Journalism at Edith Cowan University. He wishes to pursue a career in online journalism with a focus...

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RBA – “Steady as she goes”