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Interest Rate Announcement for December 2014

By Rebecca Zhang

The Reserve Bank of Australia (RBA) has announced the result of its monthly board meeting. They have decided to leave the cash rate on hold for the 16th consecutive month this year at 2.5%. This represents a 60-year low!

Some experts state that the Australian dollar remains overvalued, labour market conditions are soft, key commodity export prices have continued to decline and the economy is expected to grow below trend until at least 2016.

Dr Andrew Wilson, Senior Economist for the Domain Group, states that the Sydney market clearly leads capital city prices growth however the Melbourne market continues to weaken with house price growth this year unlikely to meet the inflation rate. The low mortgage rate driver of market activity that drove prices growth over the past year is generally diminishing in the face of modest incomes and profits growth from continuing underperforming local economies.

He also states that with house price growth now clearly moderating within an overall weakening economic environment, interest rates are set to remain at current levels over the shorter-term. A continuing deterioration in the jobless rate however will increase the likelihood of a rate cut mid-year 2015.

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