By Michael Witts

What were the main points of discussion at today’s meeting?

At his first meeting as Governor, Philip Lowe and the Board of the RBA kept the cash rate unchanged at 1.5%.

The comments following the meeting were very much in-line with recent months, which serves to underline the continuity in the handover from Glenn Stevens to Philip Lowe.

The RBA again emphasised that globally monetary policy remains, and while there is considerable variation in employment growth across the country, the Bank appears confident of continued expansion in employment in the near-term.

Low interest rates have been supporting domestic demand, and assisting the economy to make the necessary economic adjustment, although a further appreciation of the exchange rate could complicate the outlook.

The RBA has suggested that the housing market has started to level off, especially in the apartment space with increased supply coming on stream.

What effect has the cash rate cut in August had?

Generally, when the interest rate changes, it takes up to 6-9 months for the flow-on effect to impact the economy. Equally, there is a school of thought that suggests that lower rates are increasingly less effective at low absolute rates.

Consequently, it is difficult to clearly identify an impact of the August rate cut at this point in time.

Can we expect a rate cut (or rise) this year?

Given the US Federal Reserve is likely to increase rates before the end of the year, and the RBA has cut rates twice already this, we believe it is unlikely there will be a further rate cut from the RBA over the balance of this year.

What is the RBA’s view on the Australian economy? What is the RBA’s view on the global economy and the Aussie dollar? Is this different to ING Direct’s view?

The RBA was guarded in its comments on the future direction of the economy. They suggested that the economy has sufficient momentum at present, with further momentum still to flow through from the mid-year rate cuts. Against this background, it appears that the RBA is content with the level of inflation and employment growth across the economy.

The biggest issue for the RBA is the continued strength of the AUD. It is interesting that as commodity prices went lower over the past two years, the AUD was lagging the decrease in the terms of trade, however as commodity prices have started to move higher over the past few months, the AUD has increased in step. This has the potential to complicate the domestic policy settings in the period ahead.

The RBA is suggesting that increased supply in the housing market, especially of units, is starting to have an impact on rents. This could also reflect the level of investor activity in the market.

The RBA noted that China was growing at a slower rate compared with the recent past, and more broadly, there is considerable capacity in the global economy limiting the inflationary potential in the period ahead.

At ING DIRECT, we would broadly agree with the views expressed by the RBA. Clearly a lower currency would be beneficial, however this is likely to remain elusive in a zero negative global interest rate environment. We believe the RBA will be on hold for the balance of 2016 and potentially well into 2017.