A RISE in Australia’s unemployment and continued low inflation means there’s no need to change official interest rates according to The Australian National University (ANU) Reserve Bank of Australia shadow board.  

The board of the RBA will meet tomorrow (April 4) to review official interest rates, which have been at a record low of 1.5 per cent since August last year, but Australia’s big four banks have all announced higher home-loan interest rates in the past month, citing higher borrowing costs.

“The RBA shadow board remains convinced that the cash rate should remain at its current level,” Mr Henckel says.

He said the RBA shadow board attached a 54 per cent probability that holding rates steady was the appropriate setting, down from 59 per cent in March.

The confidence attached to a needed rate cut was only three per cent (four per cent in March), while confidence in a needed rate hike was up to 43 per cent in April compared to 37 per cent in March, even with the moves by the commercial banks.

Mr Henckel says elevated house prices in Australia would also weigh on the Reserve Bank’s thinking.

“Elevated house prices and the world’s third highest household debt and debt servicing ratios will continue to weigh on the RBA’s mind as the possibility of a painful price correction, with all its implications for the macroeconomy, cannot be easily dismissed,” he says.

“While there is some positive news coming out of Asia, as trade volumes are increasing, Brexit and a volatile Trump presidency continue to put investment in a holding pattern.”

In the longer term, the probability for a needed rate hike in six months increased to 74 per cent for April compared to 68 per cent in March.

The probability that rates should remain at 1.5 per cent in six months was 20 per cent (23 per cent in March), while the probable need for rates to fall in six months was down three points to six per cent.

Further information via cama.crawford.anu.edu.au/rba-shadow-board.

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