It’s getting hard to come up with anything new to say on this! But that’s as it should be, as raising rates just to get rates back to more “normal levels”, or so as to be able to cut them later if needed, would make no sense and would be bad for the economy. A premature hike would be akin to shooting yourself in the foot to be able to practice going to the hospital. (Sorry I know I have used that one before but couldn’t resist using it again!)

And don’t forget that official interest rates in Japan have been around zero for nearly 10 years, they have been around zero for around four years in Europe and they were stuck near zero for seven years from the GFC in the US. So just over two years at 1.5% in Australia is a non-event in terms of global comparisons.

On the one hand, the RBA can point to the continuing global expansion, above trend Australian GDP growth over the last year, an increase in the terms of trade and an improving labour market. But against this uncertainty remains high regarding consumer spending, underemployment remains very high, the drought will have a negative impact, house prices are continuing to fall in Sydney and Melbourne, “credit conditions are tighter than they have been for some time” and wages growth and inflation remain very weak. 

Given all these cross currents it remains appropriate for the RBA to leave rates on hold. And there remains nothing in the RBA’s latest post meeting Statement suggesting an imminent change in monetary policy. 

Our view remains that the RBA will keep rates on hold out to 2020 at least and the next move in rates could still turn out to be a rate cut given the risks around house prices and consumer spending, albeit this would not occur for at least another six months.