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RBA keeps cash rate at record low of 0.25% but will rates go negative?

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In a surprise to no one, the Reserve Bank of Australia (RBA) has kept the cash rate on hold at the record low of 0.25%.

The RBA has consistently stated that 0.25% is the lowest they'll go. Any lower, they believe, will do little to move the economic needle. Nor is the rate likely to rise in the foreseeable future, or at least until we reach full unemployment and inflation lifts to 2-3%.

"I don't think that the RBA are even close to contemplating a move to negative rates and, nor do I think they should," says Stephen Miller from GSFM.

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"I suspect the RBA would be rightly sceptical of the utility of a move to negative policy rates even in circumstances more dire than we currently confront."

Despite Melbourne's surging COVID-19 infection of late, the economy has weathered the storm remarkably well.

"Since the June RBA board meeting there has been growing evidence of a turnaround in the economy, albeit from an unprecedented low base," says Tim Lawless from Corelogic.

"Payroll data from the ABS shows the worst affected labour markets are gradually repairing, retail sales have surged, job vacancies have shown a modest lift and consumer sentiment readings are back around pre-COVID levels."

The property market is similarly robust.

"CoreLogic platform data indicates real estate agent activity is now tracking at slightly higher levels than a year ago and new listing numbers are up 43% from the recent low in early May and purchase related valuation events have increased by a bit more than 20%."

Still, the RBA is sober about ongoing uncertainty, both now and in terms of recovery.

"Uncertainty about the health situation and the future strength of the economy is making many households and businesses cautious, and this is affecting consumption and investment plans.

"The pandemic is also prompting many firms to reconsider their business models."

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David Thornton is a journalist at Money magazine. He previously worked at Your Money, covering market news as producer of Trading Day Live. Before that, he covered business and finance news at The Constant Investor. David holds a Masters of International Relations from the University of Melbourne.
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