Interest rates left on hold

Interest rates left on hold

Interest rates left on hold

Financial markets are tipping two more rate cuts this year - but one didn’t come today.

With official interest rates already at record lows and the full-effect of previous cuts yet to flow through the economy, the Reserve Bank has decided to hold the official cash rate steady at three percent in its meeting today.

As is becoming the norm for the RBA, it was forced to make a decision based on a mixed set of economic data. Job advertisements rose for the second month in a row and posted a healthy 3 per cent jump in February, an ANZ survey reported. Inflation too is of no concern with a leading unofficial measure of inflation showing price pressures are being contained.

On the worrying side however, the housing construction sector has started 2013 on the back foot and is showing no signs of picking up with residential building approvals falling 2.4 per cent in January. The result was much weaker than the 2.8 per cent rise market economists had expected.

Company gross operating also profits fell 1 per cent for the 2012 December quarter. Gross operating profits in current prices and seasonally adjusted terms were down 7.6 per cent in the 12 months to December 2012, the Australian Bureau of Statistics (ABS) said on Monday.

HSBC Australia chief economist Paul Bloxham said business spending figures, released last week, showed there was a lot of investment in the pipeline that would stimulate the economy for months to come.

"The continued rise in mining investment, as (the building of) large LNG (liquefied natural gas) projects continue, should support growth, which should give the RBA more time to see the impact on the non-mining sectors of the cuts it has already delivered," he said.

Could rates still come down in 2013?

Most of the pressures that led to the Reserve moving rates to what it called “emergency” levels still persist, and it is too early to conclude that the easing cycle has finished.

Markets are pricing in two more cuts of 25 basis points, or 0.25 percentage points, this year, which would lower the cash rate to 2.5 per cent.

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