The Reserve Bank of Australia (RBA) has kept the official cash rate on hold at 3.50 per cent, in line with market consensus.
The RBA’s decision to keep interest rates on hold at its July board meeting comes after it cut the cash rate by 50 basis points in May and 25 basis points in June.
In a survey by AAP, all 21 economists who took part in the poll said they did not expect the RBA to cut in July.
Economists’ expectations were centred on just one more cut this year, bringing the cash rate to 3.25 per cent.
AMP chief economist Shane Oliver said that a spate of strong data since the previous board meeting on June 5 may have changed the central bank’s outlook on the domestic economy.
“I tend to think that because they cut at two meetings in a row, and because the GDP (gross domestic product) and April employment figures surprised on the upside.
“Right now they’d probably be inclined to sit back and wait and see,” he said.
GDP in the March quarter was up 1.3 per cent from the December quarter for a rise of 4.3 per cent in the 12 months to March.
Employment figures were impressive also – with the number of people with jobs rising by 38,900 between April and May.
Although developments in Europe would remain a concern, the previous rate cuts could be seen as a buffer against any risk, Dr Oliver said.
“To get them (the RBA) to cut again at this meeting would require far more uncertainty regarding the global backdrop – a complete breakdown in Europe – but we haven’t seen that yet,” he said.
Commsec chief economist Craig James said that while June’s rate cut was influenced by Europe, the RBA would be looking for information on domestic growth before moving again.
“If the inflation figures are low at the end of July, as we expect, that will give the Reserve Bank some added confidence about cutting rates again, realising that inflation is under control and there’s good reason to try and accelerate growth here in Australia,” he said.
Consumer uncertainty about changes brought in by the mining and carbon taxes could also encourage cuts later this year, Mr James said.
Deutsche Bank economist Adam Boyton said that despite good GDP and jobs numbers, the Australian economy could still do with a nudge.
“Consumer confidence is lower now than when the RBA started to move at the end of last year,” he said.
“In an environment where the terms of trade are declining, real GDP growth even of this sort isn’t going to be enough to stop the unemployment rate from drifting up.”