Reserve Bank leaves official cash rate on hold in October

The Reserve Bank has decided to again leave official interest rates on hold over October at the record low 1.5 per cent set over August. The Bank will continue to take a wait and see approach and assess the impact on the economy of the recent cuts to determine if further cuts are required.

Latest economic data remains mixed and largely directionless with the Bank awaiting the September quarter inflation rate data due to be released by the ABS on October 26.

Although the national seasonally-adjusted jobless rate fell to a new three-year low of 5.6 per cent over August, the economy is still shedding full-time workers with recent growth restricted to part-time work.

Home building approvals remain robust despite recent signs that the peak of the residential planned construction boom may have passed.

Recent retail sales activity however is relatively flat and the dollar is still higher than desirable although the sharemarket appears to be consolidating recent gains.

The Bank however will be increasingly alert to a resurgence in house prices growth generated by lower mortgage rates. The Domain Group is reporting strong growth in asking prices over the September quarter in both the Sydney and Melbourne markets and reflects high and rising auction clearance rates in those cities over the past month.     

With concerns over a resurgence in house prices, an overall steady if benign economic performance and dependant on reasonable inflation rate outcomes, the Reserve Bank is now likely to leave official rates on hold until next year.

 

Credit : Dr Andrew Wilson is Domain Group Chief Economist