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Rates to hold until 2017

By Francesca Krakue
RBA cash rate
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The Reserve Bank is likely to keep the official cash rate on hold for a whole yet, as it waits for the August cut to flow through the economy, according to a new analysis.

A RateCity.com.au analysis of over 30 key economic indicators suggested that the RBA would maintain its “wait-and-see” approach at its monthly board meeting yesterday.

Peter Arnold, data insights director at RateCity.com.au, explained that a hot housing market, high household debt levels and subdued investor lending has “steadied the RBA’s hand”.

“After two rate cuts this year the housing market is heating up, with house prices holding strong and auction clearance rates and building approvals both rising,” Mr Arnold elaborated.

“Australian households have more debt compared to the size of the country’s economy than any other in the world, partially fuelled by record low rates.

“The higher our debt levels, and the closer we get to a zero cash rate, the less effective each cut becomes and the RBA will be keenly aware of that fact having seen the negative impact of negative rates around the world,” Mr Arnold said.

Mr Arnold commented that theoretically, a rate cut provides consumers with more spending money, which helps “kick along’ the economy, however as many banks withheld almost half of the RBA’s cut in August, the board is unlikely to make another cut.

He added that the RBA will be closely tracking movements in international markets, including China and the United States and the impact to Australia’s exports prices and dollar.

“The federal reserve is getting close to lifting US interest rates, while Chinese iron ore futures tumbled late last month putting further pressure on our export prices — both of which have ramifications for our domestic economy,” he explained.

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Francesca Krakue

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