Statement by Glenn Stevens, Governor: Monetary Policy Decision

At its meeting today, the Board decided to leave the cash rate unchanged at 2.5 per cent.

Growth in the global economy is continuing at a moderate pace. China's growth remains generally in line with policymakers' objectives, with weakening property markets a challenge in the near term. Commodity prices in historical terms remain high, but some of those important to Australia have declined this year.

Financial conditions overall remain very accommodative. Long-term interest rates and risk spreads remain very low. Volatility in many financial prices is currently unusually low. Markets appear to be attaching a very low probability to any rise in global interest rates or other adverse event over the period ahead.

In Australia, the most recent survey data indicate gradually improving business conditions and some recovery in household sentiment after a weaker period around mid year, suggesting moderate growth in the economy is occurring. Resources sector investment spending is starting to decline significantly. Investment intentions in some other sectors continue to improve, though these areas of capital spending are expected to see only moderate growth in the near term. Public spending is scheduled to be subdued. Overall, the Bank still expects growth to be a little below trend over the year ahead.

The recorded rate of unemployment has increased recently, despite some improvement in most other indicators for the labour market this year. The Bank's assessment remains that the labour market has a degree of spare capacity and that it will probably be some time yet before unemployment declines consistently. Growth in wages has declined noticeably and is expected to remain relatively modest over the period ahead, which should keep inflation consistent with the target even with lower levels of the exchange rate.

Monetary policy remains accommodative. Interest rates are very low and have continued to edge lower over recent months as competition to lend has increased. Investors continue to look for higher returns in response to low rates on safe instruments. Credit growth has picked up a little, including most recently to businesses. The increase in dwelling prices continues. The exchange rate, on the other hand, remains above most estimates of its fundamental value, particularly given the declines in key commodity prices. It is offering less assistance than would normally be expected in achieving balanced growth in the economy.

Looking ahead, continued accommodative monetary policy should provide support to demand and help growth to strengthen over time. Inflation is expected to be consistent with the 2–3 per cent target over the next two years.

In the Board's judgement, monetary policy is appropriately configured to foster sustainable growth in demand and inflation outcomes consistent with the target. On present indications, the most prudent course is likely to be a period of stability in interest rates.

Rates remain on hold – new record

·        Official cash rate remains on hold at 2.5% at the September RBA board meeting

·        13 months since the last rate movement; a rate cut in August 2013 and four years since last rate rise

·        The last time we waited this long for rates to move it was May 2006 and rates had been on hold 14 months and the cash rate increased to 5.75%

·        Still a lot of competition as lenders drive rates lower – variable rates from 4.54% and fixed from 3.89%

September 2, 2014, Sydney:

The Reserve Bank of Australia’s decision to leave official interest rates on hold at 2.50 percent today marks a milestone – 13 months since the last rate movement, a 0.25 percentage point rate cut in August 2013.

A RateCity analysis of RBA data shows that as at September it is the longest period with a steady cash rate on record since May 2006. And, if the cash rate remains on hold for the remainder of this year, it will be 18 months unchanged and the longest period of continuously steady rates in almost 20 years.

Peter Arnold, product director at RateCity.com.au, said it’s been more than a year since the RBA cut rates and around four years since the last rate rise.

“The last time we waited this long for the Reserve Bank to move the official cash rate it had been on hold for 14 months. It was May 2006 and the cash rate was lifted to 5.75 percent,” he said.

“The great news for consumers is that rates are low and there’s plenty of competition now – particularly in the fixed-rate space, where we’ve seen some ultra-low rates under 5 percent for five years.”

The RateCity database shows advertised fixed rates from 3.89 percent for one year, from 4.84 percent for five years, and variable rates from 4.54 percent.

“During this low-rate environment the RBA has been quite vocal, that this isn’t a free ticket to borrow up big. This is an opportunity to pay down your loans and RBA data shows that most people are doing this.