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RBA Rate - May 2019

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RBA leaves cash rate on hold at 1.50 per cent

The Reserve Bank of Australia (RBA) board has decided to keep rates on hold at 1.50 per cent for the 30th monthly meeting in a row in spite of the significant level of anticipation from the public that a cut could have been likely for May 2019.

The record-low cash rate of 1.5 per cent has been at this level since the last move in August 2016, although money market traders do not expect it to stay there much longer.

Many economists and market analysts predict the RBA will be forced to act next month, while others pointed to Australia’s current election campaign as a possible deciding factor in the RBA not acting now.

The market is now seeing a 37 per cent chance of rates falling in June, a better than even chance of a cut by July, and a greater-than-70 per cent chance of rates falling by the RBA’s August meeting.

Governor Philip Low said that the bank’s core scenario of strong growth remains, trimming just 0.25% from its forecast of 3% growth this year.

"Lower housing-related costs and a range of policy decisions affecting administered prices both contributed to this outcome."

"Looking forward, inflation is expected to pick up, but to do so only gradually."

Bureau of Statistics figures show that consumer prices remained unchanged between January and March this year, for an annual inflation rate of 1.4 per cent when the most volatile price changes were removed.

This inflation rate is well below both the Reserve Bank's forecasts and its 2-3 per cent target range. The rate has therefore caused a massive surge in betting on a May rate cut.

The Reserve Bank appears to have adjusted its threshold for a rate cut, noting that further declines in unemployment would likely be needed to get inflation back towards its target.

The RBA board “recognised that there was still spare capacity in the economy and that a further improvement in the labour market was likely to be needed for inflation to be consistent with the target," RBA governor Philip Lowe noted in his post-meeting statement.

"Given this assessment, the board will be paying close attention to developments in the labour market at its upcoming meetings."

For the official RBA article, please visit the Reserve Bank’s website.