RBA holds cash rate at 2% for September

The Reserve Bank of Australia has kept the official cash rate at 2% for the month of September.

This is the fourth month in a row where the cash rate has remained unchanged.

The rate was last cut in May by 25 basis points.

Today’s result was expected by economists and investors, who overwhelmingly agreed the cash rate would remain unchanged.

RBA governor Glenn Stevens says the rate will remain unchanged because the Australian economy is “likely to be operating with a degree of spare capacity for some time yet”.

“Inflation is thus forecast to remain consistent with the target over the next one to two years, even with a lower exchange rate,” Stevens says.

“In such circumstances, monetary policy needs to be accommodative. Low interest rates are acting to support borrowing and spending.”

Paul Bloxham, chief economist at HSBC, told SmartCompany  the decision shows the RBA is monitoring the events in China but is overall not very concerned.

“The two main things making them comfortable are the Australian labour market is continuing to improve, so the unemployment rate is steady over the year,” Bloxham says.

“Secondly, the Aussie dollar is doing a lot of the work for them. It has fallen to a level that makes them a lot more comfortable. So it’s those two factors that mean the RBA is comfortable with its current policy setting.”

Meanwhile, managing director of Market Economics, Stephen Koukoulas, told SmartCompany the RBA’s decision to keep the official cash rate on hold came as no surprise.

“The RBA, as they have often done in interest rate settings, is look at the overall policy settings,” Koukoulas says.

“In the first half of this year they cut interest rates twice and that takes a bit of time to trickle into the economy.”

“Obviously they’re worried about the global economy and looking at the economic news like all of us to see how the economy will perform, but there’s not much they can do to kickstart the economy.

“Another 25-basis point cut will help with the margin, but the overall effect is probably not the real driver in a pick-up of activity.”