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Domestic political uncertainty and global volatility have been cited as the main reasons the Reserve Bank chose to leave the official cash rate unchanged.
RBA governor Glenn Stevens announced yesterday afternoon the board had decided to leave the cash rate on hold at 1.75 per cent, a decision anticipated by 30 of 31 commentators and economists surveyed by comparison website finder.com.au.
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“England’s decision to leave the European Union, combined with ongoing uncertainty around Australia’s next government provided the board with the incentive they needed to leave the cash rate untouched at 1.75 per cent,” Mortgage Choice CEO John Flavell said.
“I believe the board will wait to see what impact these recent events have on consumer sentiment and the broader Australian economy before making any changes to the official cash rate.”
Mr Flavell said future rate cuts could not be ruled out.
“Depending on what the end result of the federal election is and what impact it has on consumer confidence, as well as other key economic metrics, we may see the Reserve Bank of Australia cut the cash rate at least once more this calendar year,” he said.
“The Reserve Bank will also be keen to see what the next round of inflation data reveals.
“As we saw in May, a poor inflation result can encourage the Reserve Bank to cut the cash rate.”
CoreLogic head of research Tim Lawless echoed this sentiment, flagging the possibility the cash rate could be moved lower next month if inflation figures did not meet the RBA’s target range.
“The changes of interest rates moving lower in August remain high,” Mr Lawless said.
“June quarter inflation data will be available late this month, providing a timely read on consumer prices prior to the August RBA meeting.
“It is likely that the inflation figures will come in well below the RBA target range of 2-3 per cent. If that is the case, there is a high likelihood that interest rates will move lower next month.”
Mr Lawless added that the challenge for policymakers and regulators would be to ensure lower mortgage rates did not fuel a higher rate of growth in the Sydney and Melbourne housing markets.
[Related: Analysis: What brokers can learn from the UK]
