RBA keeps it steady at historic low of 2%. Follow reaction with our live coverage 4.10pm AEST The focus will undoubtedly be about the dollar. Stevens move away from jawboning the currency downwards has sent the market into a mini-frenzy. 3.31pm AEST 3.25pm AEST Conclusion among market watchers seems to be that RBA is more upbeat and the dollar has responded by rising strongly since 2.30pm. The local unit is now at US73.51c – a gain of nearly one cent on the last 24 hours trading. 3.03pm AEST 2.52pm AEST The governor’s statement kept up the cut and past right through to the conclusion. A month ago this was the conclusion to the statement:The Board today judged that leaving the cash rate unchanged was appropriate at this meeting. Information on economic and financial conditions to be received over the period ahead will inform the Board’s assessment of the outlook and hence whether the current stance of policy will most effectively foster sustainable growth and inflation consistent with the target.The Board today judged that leaving the cash rate unchanged was appropriate at this meeting. Further information on economic and financial conditions to be received over the period ahead will inform the Board’s ongoing assessment of the outlook and hence whether the current stance of policy will most effectively foster sustainable growth and inflation consistent with the target. 2.47pm AEST One change was on the issue of the exchange rate. Last month it noted that it was “likely and necessary” for the dollar to fall but this month simply said it was “adjusting to the significant declines in key commodity prices”.In the few minutes since the announcement, the value of the dollar has risen from around US$0.72990 to US$0.7330 - a rise of 0.5%, which isn’t a great deal, and pretty much the usual after such announcements. 2.44pm AEST And more on that housing market issue ...It notes that:Low interest rates are acting to support borrowing and spending. Credit is recording moderate growth overall, with stronger borrowing by businesses and growth in lending to the housing market broadly steady over recent months.The Bank is working with other regulators to assess and contain risks that may arise from the housing market. In other asset markets, prices for equities and commercial property have been supported by lower long-term interest rates. 2.42pm AEST On the international front the RBA notes that:The Federal Reserve is expected to start increasing its policy rate later this year, but some other major central banks are continuing to ease policy. Hence, global financial conditions remain very accommodative. Despite fluctuations in markets associated with the respective developments in China and Greece, long-term borrowing rates for most sovereigns and creditworthy private borrowers remain remarkably low. 2.40pm AEST Each statement by the RBA generally involves a fair degree of cut and paste, and this one is almost verbatim the same as last month’s.But there is a slight difference in the paragraph on the domestic economy.While the rate of growth has been somewhat below longer-term averages, it has been associated with somewhat stronger growth of employment and a steady rate of unemployment over the past year. 2.38pm AEST And the usual on the housing market...“The Bank is working with other regulators to assess and contain risks that may arise from the housing market.” 2.37pm AEST “Low interest rates are acting to support borrowing and spending.” 2.36pm AEST “Policy must be accommodative.”Here’s the statement in full. 2.30pm AEST Rates on hold at 2%. 2.27pm AEST But this brings with it a couple questions:1. Is growth below average and thus the RBA should keep thinking about cutting rates? 2.26pm AEST The new normal?A big question posed by the governor of the RBA, Glenn Stevens, last month was what is “the new normal”? We are currently experiencing abnormally low inflation and wages growth, our economy is growing below average, and yet employment is not falling as would be expected. 2.22pm AEST Falls in our exchange rate generally lead to rises in the cost of our imports. For now that really hasn’t been that big of a deal, because there was also a big fall in the price of oil (which alas, has now stopped falling and is back rising).The rise in the price of goods and services which has a price determined on the world market (such as petrol and other imported goods) fell 0.3% in the past year: 2.19pm AEST Two reasons for the low dollar. Firstly iron ore and coal prices plummeted. When a third of a country’s exports fall, the value of that country’s currency will usually fall with it 2.13pm AEST The dollarOne reason given in the past for the need for an interest rate cut has been to get the value of our dollar down. 2.08pm AEST The slowing of the building approvals is happening pretty much across the country. 2.07pm AEST The impact of the new Apra speed limits has also seen banks move to try to dampen the investor market themselves.All four of the big banks have in the past month raised the interest rates for investor housing loans by around 27 to 29 basis points. 2.01pm AEST The fall in approvals of apartments – which are basically investor led construction (you don’t have many owner occupiers building an apartment block!) – comes off the back of some interesting findings regarding investor activity.Figures which showed a jump in the numbers of properties being listed for sale in Sydney and Melbourne could be a sign that investors are rushing to get out of the market. Any changes in investor habits is largely being driven by moves by the Apra to limit such lending. 1.53pm AEST Last week also saw the release of the important building approvals data.The RBA knows its most direct impact on the economy through cutting or raising interest rates comes via the building industry – specifically the residential market. 1.46pm AEST Retail sales upAny hopes of a cut in rates were probably smashed with the release of the retail trade figures today. 1.36pm AEST The market expectations of interest rates haven’t changed a great deal in the past month. But if anything the market now remains more sure that another rate cut will occur – it’s just that they expect it will come later than it previously expected. 1.22pm AEST Good afternoon. Greg Jericho here.Today most economists agree with the market pricing that suggests there is only a small chance of a rate cut. The market currently is pricing in just a 9% chance of a rate cut. 1.19pm AEST Before Greg Jericho takes us through the various factors governing today’s decision – which include a look at those retail sales figures and its positive impact on the Australian dollar today, now at US72.91c – there’s been an interesting note from credit agency Moody’s about the Australian Prudential Regulatory Authority’s decision to force banks to hold more capital against their huge mortgage books.Moody’s says the decision and fallout which we reported on last week will help guard against the risks facing the banks in the property market. Francesco Mirenzi, senior analyst, says:The additional capital that will be required to be held against residential mortgages will better align the banks’ capital positions with the growing tail risks arising from their residential mortgage exposures during a period of high investor demand and an associated rapid acceleration in house prices in Sydney and Melbourne.Moody’s expects further increases in capital requirements to be announced over the next 12 months, a result in turn of ongoing changes to the global capital adequacy framework for banks, as driven by the Basel Committee on Banking Supervision. 1.09pm AEST Good afternoon and welcome to the live blog on the RBA board’s latest monthly meeting. The main focus is of course its decision on the cash rate at 2.30 but before then we’ll set the scene.Most economists expect the board to keep the cash rate on hold at the historic low of 2% but despite two cuts already this year, there’s still a case for reducing borrowing costs. Equally, strong retail sales for June suggest the economy is powering up so maybe the bias will start towards raising rates. Continue reading...
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