RBA keeps cash rate on hold in May

The board has decided to hold the cash rate at its record low of 1.50 per cent.

The decision had been widely predicted and came as no surprise to the assistant governor for financial markets at the RBA, Christopher Kent. 

Speaking recently, Mr Kent said that the decision is a product of unemployment and inflation.

“What the RBA governor has made very clear is that what we’ve seen is a gradual decline in the unemployment rate over recent years, and what we’re forecasting [is] that continues to decline – but only gradually,” Mr Kent told an industry briefing last week.

“The same is true for inflation. A gradual rise and it is expected to continue to rise quite gradually. So, the fact that there is progress suggests that the next move in interest rates by us is likely to be up, not down, but the fact that it is gradual means that there is no particular rush to do that.”

AMP Capital chief economist Shane Oliver said that there were many reasons why the RBA kept the cash rate as is for another month.   

“Strong business conditions and employment, rising non-mining investment, strong global growth and the RBA’s own forecasts argue against a cut,” Mr Oliver said.

“But low inflation and wages growth, risks around the outlook for consumer spending, the slowing Sydney and Melbourne property markets and tightening bank lending standards argue against a hike.”