There were no surprises from the Reserve Bank of Australia this afternoon with the central bank electing to leave interest rates unchanged at their record low of 2 per cent.
The RBA has made two interest rate cuts so far this year but has remained reluctant to lower them any further, despite a low inflation rate and elevated unemployment. Indeed, Sydney's property market remains somewhat inflated which the Bank confirmed it was still working with other regulators to assess.
A weaker Australian dollar made the Board's decision somewhat easier. The RBA has, for a long time, been targeting an exchange rate of US75 cents and it finally got its wish on Monday as the dollar fell to a low of US74.64. The local currency is currently fetching US74.75 cents, although the Bank maintained its stance that "further depreciation seems both likely and necessary."
Unfortunately, the Board failed to provide any clear indications on the future direction of interest rates, although it did refer to "much lower" commodity prices, as well as fluctuations in markets associated with the respective developments in China and Greece – all three of which have caused volatility on the sharemarket recently.
It is expected that the Reserve Bank's chair Glenn Stevens will address his views on the Greek debt 'crisis' in his post-meeting statement, although he has already indicated that any direct impact on Australia would be minimal. That is, Australia would likely only be impacted as a result of any spill-over effects throughout the global economy.
The Bank said: "The Board today judged that leaving the cash rate unchanged was appropriate at this meeting. Information on economic and financial conditions to be received over the period ahead will inform the Board's assessment of the outlook and hence whether the current stance of policy will most effectively foster sustainable growth and inflation consistent with the target."
Although an interest rate cut would have been nice for dividend investors, it's actually encouraging that the Board elected to leave them unchanged in that it does not believe a rate cut is necessary in light of the Greek situation.
Unlike its previous meetings, the markets responded calmly to the Bank's decision with the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) trading 1.7% higher late in the session. Westpac Banking Corp (ASX: WBC) is leading the charge with a 3.2% gain while National Australia Bank Ltd (ASX: NAB), Commonwealth Bank of Australia (ASX: CBA) and Australia and New Zealand Banking Group (ASX: ANZ) are also trading between 1.2% and 2.2% higher.
