The Reserve Bank of Australia is set to hold its benchmark interest rate steady for a ninth consecutive month to keep downward pressure on household debt and as inflation creeps back into its target band.
All 12 economists surveyed by AAP expect the RBA to leave the cash rate steady at a record low of 1.5 per cent at its May board meeting on Tuesday.
The last time the central bank shifted its benchmark rate was back in August last year as it tried to boost sluggish inflation.
Capital Economics chief economist Paul Dales said headline consumer price growth was 2.1 per cent in the year to March 31, returning to the RBA’s two to three per cent target band for the first time in more than two years.
He said underlying inflation, which cuts out volatile price movements had also bumped up to 1.8 per cent annually, compared to 1.5 per cent in the year to the December quarter.
“It’s not at the extremely low levels that we thought would force the RBA to put aside its remaining financial stability concerns and cut interest rates further,” he said.
Commonwealth Bank chief economist Michael Blythe said the RBA was now focusing on the housing market and would not risk further inflaming prices with another rate cut.
RBA governor Philip Lowe is due to speak at a business lunch on Thursday and the title of his speech – “Household Debt, Housing Prices and Resilience” shows where the central bank’s focus is at present, Mr Blythe said.
“A central bank Governor concerned about the high levels of household debt, overly rapid growth in house prices and the potential threat to the economy and financial system does not want to cut interest rates,” he said.
Mr Dales said the only factor that could possibly prompt the RBA to cut rates again would be a deterioration of the labour market where the unemployment rate rose above the peak of 6.3 per cent recorded in 2015.
Both economists agreed that the Reserve Bank would not consider raising rates until sometime in 2018.
The Reserve Bank will announce its interest rate decision at 1430 AEST on Tuesday.