THE Reserve Bank has left the door open for another interest rate cut in coming months despite disappointing share investors and retailers by staying on hold this month.
The central bank opted to keep the official interest rate unchanged at 2.25 per cent but said “further easing of policy may be appropriate over the period ahead”.
Financial markets had factored in a 62 per cent chance of a cut to 2 per cent.
The decision to stay on hold sent the ASX 200 index 25 points lower to 5934 points on Tuesday. IG market analyst Chris Weston said investors had been gearing up for the market to break through the 6000 point mark for the first time since early 2008, but the rate decision led to a sell off.
“They were disappointed that the RBA didn’t cut the rate,” he said.
Banking stocks were all softer with Commonwealth Bank leading the way, down 63¢ to $91.92.
The Australian dollar shot up nearly US1¢ to breach US78¢ on the decision, and was trading at US78.14¢ on Tuesday night.
RBA governor Glenn Stevens said the Aussie dollar remained “above most estimates of its fundamental value”, and continued his mantra of a lower Aussie being needed to achieve balanced growth.
NAB chief economist Alan Oster said the central bank had bought time to plot its next move. “He (Glenn Stevens) wants to keep some of his powder dry to see what happens,” Mr Oster said.
Retailers had pinned their hopes on another rate cut to boost confidence. Australian Retailers Association executive director Russell Zimmerman said retailers were still struggling to entice consumers to open their wallets, ith low wages growth and unsettled economic conditions overseas contributing to lacklustre confidence.
He said that while the current period of stable interest rates was a positive sign for both business and consumers, more needed to be done.
“Talking to retailers they say they are still struggling,” Mr Zimmerman said. “The RBA should consider further rate cuts next month.”
Shopper Maree Mills from Tarragindi said low interest rates meant her family can afford to spend more on non-essential items. “We’re not going to jump into anything crazy but it does mean we can relax a little,” Mrs Mills said.
She said the stability of the economy, the unemployment rate and the possibility of another GFC were always at the back of her family’s mind.
“I think it’s important to always keep a bit in the bank,” Mrs Mills said.
“I’m optimistic about the next 12 months but you always need that buffer, just in case.”