RBA KEEPS CASH RATE ON HOLD AT 1.5 PER CENT

FOR THE seventh consecutive month, the Reserve Bank of Australia (RBA) has decided to leave the official cash rate on hold at 1.5 per cent.

Inflation remains below the official target of 2 per cent and "quite low" according to the RBA, and with growth in labour costs remaining subdued, underlying inflation is expected to stay low for some time.

However, the Board does expect headline inflation to move above 2 per cent over the course of this year, and with the US Federal Reserve expected to raise interest rates in March, there could be impetus for the RBA to do the same as 2017 progresses.

Given the heated property markets in Sydney and Melbourne, the focus leading up to today's decision was on whether the current low interest rate was fuelling a bubble in those cities.

In its decision today, the RBA noted that conditions in the housing market vary considerably around the county, and there is a "considerable additional supply of apartments" coming online over the next two years, and rent growth is slowest in two decades.

Mortgage Choice chief executive officer John Flavell said the decision was "expected", as RBA governor, Phillip Lowe, recently made it clear that future cuts to the cash rate were unlikely.

"In his opening statement to the House of Representatives Standing Committee on Economics, Mr Lowe suggested that the current monetary policy setting remained appropriate for achieving sustainable growth in the economy," says Flavell.

"And he certainly seems to be right, with recent data suggesting the Australian economy is tracking along quite well."

Economic growth rebounded strongly in the December quarter, smashing economist expectations.

Gross Domestic Product rose 1.1% from the September quarter, beating the anticipated 0.8% rise.

In addition, consumer sentiment rebounded slightly in February. According to the Westpac Melbourne Institute Index of Consumer Sentiment, confidence climbed 2.3% throughout the month.

Meanwhile, research conducted by CoreLogic found property values rose by 1.4% across the combined capital cities over the month of February.

"Sydney was once again the standout performer, with median values climbing 2.6% across the capital city throughout the month," says Flavell.

"From this data, we can see that the Australian economy is tracking along quite nicely at the moment, so it wasn't surprising to see the Reserve Bank opt to leave the cash rate on hold for another month."

While the Board decided to leave the cash rate on hold once again, Flavell says the market is anything but stationary, with many of Australia's lenders tweaking their pricing and policy in recent weeks.

Business News Australia