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August Cash Rate Announcement

By Ray White Toronto Reception

Reserve Bank makes cash rate announcement

www.rebonline.com.au

The Reserve Bank of Australia has announced the outcome of its monthly board meeting.

The Reserve Bank backed up the prediction of most economists by leaving the official cash rate at a record-low 2.5 per cent for the 13th consecutive month.

All 25 economists surveyed by comparison website finder.com.au had forecast rates would remain on hold.

AMP Capital chief economist Shane Oliver told finder.com.au there was no need to change the cash rate because the economic outlook had remained steady since the August meeting.

ANZ chief economist Warren Hogan said the economy had been playing out as expected, with housing doing well and the gradual transition to a non-mining recovery on track.

He also said the Reserve Bank would have derived no benefit from lowering rates because it would have squandered an option “that would be better used if a major problem emerges”.

All but two of the 25 economists said rates would rise next year, with 10 forecasting a rate rise in the first half and 13 in the second half.

According to the survey, 21 of the economists said when rates did start rising they would stop before they reached the historical average of about five per cent.

Commonwealth Bank chief economist Michael Blythe said the Reserve Bank would start a “modest tightening cycle” in February that would eventually lift rates to a ‘neutral’ 3.5 per cent.

Peter Munckton from Bank of Queensland said the Reserve Bank was likely to keep rates on hold for the rest of 2014/2015, but that it would most likely cut further if it did make a change.

“The bar for another rate cut is quite high and would require the currency to remain around current levels, the unemployment rate to rise further and momentum in the non-mining economy to stay modest,” he added.

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