Interest Rates On Hold

The Reserve Bank has decided to keep official interest rates unchanged at the record low 1.75 per cent over July. 

But with continuing signs of weakening local economic activity and growing concerns over the state of the international economy, the likelihood is increasing of a cut in rates over coming months.

Although turmoil in international markets following the Brexit decision has eased, significant concerns remain over the economic implications for global growth.

Latest local economic data remains underwhelming and largely directionless with the case clearly growing for further stimulus through lower rates.

Although the May Australian Bureau of Statistics (ABS) jobless data remained steady at three-year lows, most of the recent jobs growth has been in part-time employment.

Signs are also continuing to consolidate that the home building boom that has been a key recent driver of economic output may have peaked.

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Political uncertainty following the recent federal election may also impact consumer sentiment and effective policy making with clear economic implications.

Housing markets, however, have responded to recent cuts to mortgage rates and rising competition amongst lenders for customers with home buyer activity increasing in most capitals over June.

Although rates are again on hold this month, the chances of the Reserve Bank cutting in future months has now increased. June quarter ABS inflation data to be released on July 27 will be a key determinant of future rate settings.

Reported by Andrew Wilson – Domain Group’s chief economist.

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