Low interest rates to stay for a while

Today, the bank did not suggest that further depreciation of the Australian dollar was “both likely and necessary” but simply stated that: “the Australian dollar is adjusting to the significant declines in key commodity prices”.

RBA Governor Glenn Stevens today announced the cash rate would not be moving for a third time this year and instead would stay put where it has been since May. “Part of the rationale around having an easing bias and threatening to cut, is to get your currency lower”.

Numerous experts felt that it was too early for another rate cut, given that the Reserve Bank lowered the cash rate by 0.25 per cent in February and by the same amount in May. “Credit is recording moderate growth overall, with growth in lending to the housing market broadly steady over recent months”.

The Aussie rose after the statement and traded at 73.48 U.S. cents at 3:29 p.m.in Sydney from 72.94 cents.

“That should remain the case for some time, given the very slow growth in labour costs”.

Regardless of whether there are further interest rate cuts on the way however, investors can have confidence that interest rates will remain low for the foreseeable future.

Red-hot demand has sent home prices through the roof with Sydney boasting annual gains of more than 18 per cent and Melbourne over 11 per cent.

The decision to leave rates on hold for a third consecutive month appears to diminish the chances that rates will eventually fall to 1.5 percent, Paul Dales, chief Australia & NZ economist at Capital Economics, said.

However, a sustained surge in borrowing for property investment has not been almost so welcome.

Just last month, RBA’s Stevens cautioned that yet lower rates might backfire if they encouraged an upward spiral in borrowing that ultimately led to a bust in home prices.