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RBA Update September

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RBA rate on hold for September 2018

It should come as no surprise to many that the Reserve Bank of Australia (RBA) has kept the Official Cash Rate on hold for the month of September 2018. This statement comes less than a week after Westpac Bank disregarded the official interest rate and increased costs for its borrowers. Tim Lawless from Core Logic believes that Westpac’s decision is likely to decrease the chances of a higher cash rate even more.

Commonwealth Bank, ANZ and National Australia Bank are now considering following suit and weighing up whether to pursue Westpac's lead after the central bank again signalled that official rates were unlikely to change in the near future. Westpac justified its decision to raise rates by pointing to higher wholesale funding costs and a smaller deposit base.

This is the 25th consecutive month since the RBA have made any change to the cash rate. RBA governor Philip Lowe's statement remained upbeat, arguing the Australian economy grew at above trend pace in the first half of the year. However, Dr Lowe pointed to debt and drought as looming concerns in the domestic economy.

"Household income has been growing slowly and debt levels are high. The drought has led to difficult conditions in parts of the farm sector," Dr Lowe said.

The RBA also appears to be not overly concerned with the out-of-cycle rates rises emerging in the home lending sector.

"Money-market interest rates are higher than they were at the start of the year, although they have declined somewhat since the end of June," Dr Lowe said.

As per last month’s closing statement, the RBA stated “further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual”. “Taking account of the available information, the Board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.”

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