RBA cites jobs boost in holding cash rate

RBA Governor Philip Lowe
RBA Governor Philip Lowe

The Reserve Bank of Australia has held the cash rate at a record low 0.75 per cent despite the economic headwinds presented by the catastrophic summer bushfires and coronavirus crisis.

The central bank board's first interest rate decision for 2020 was to delay cutting to a fresh record low 0.5 per cent, with RBA Governor Philip Lowe citing improved unemployment figures for December in his announcement.

The unemployment rate declined in December to 5.1 per cent, where Dr Lowe expects it to remain "for some time, before gradually declining to a little below 5.0 per cent in 2021".

The strength of the labour market is considered a key metric in setting monetary policy and central to hitting the RBA's inflation target of 2.0 to 3.0 per cent.

Dr Lowe on Tuesday noted inflation remained low and stable, and that the central scenario was for the figure to be around 2.0 per cent in the near term and to fluctuate around that rate over the next couple of years.

Market expectations of a February cut had evaporated from rusted-on certainty in October to an outside chance following a bump in quarterly inflation and improved employment figures last week.

The RBA last cut the interest rate in October, the third of three cuts in 2019 as the economy stagnated.

Disappointing third-quarter GDP figures, underwhelming retail data, a bushfire emergency and the outbreak of the coronavirus have added pressure on the economy since the board's December meeting, with economists expecting the RBA to downgrade its forecasts accordingly in Friday's Statement on Monetary Policy.

As in previous statements, Dr Lowe left the door open for further cuts and "an extended period of low interest rates".

The Australian dollar climbed from 66.85 US cents to 67.14 US cents within five minutes of the RBA's 1430 AEDT decision on Tuesday.

Australian Associated Press