RBA Keeps Rates on Hold in June 2016

The Reserve Bank of Australia has announced it will hold the official cash rate at 1.75% in June, following a 25 basis point reduction in May.

It was widely expected that the cash rate would remain on hold among a few positive indicators, suggesting there was no urgent need for easier lending through a reduction in interest rates.

The first of these was growth in gross domestic product (GDP). GDP growth in the March 2016 quarter surpassed expectations of 0.7%, expanding 1.1%. This is the strongest result since the March quarter of 2012.

Ordinarily, such a strong economic growth rate may be accompanied by higher spending and consumer confidence, which may lead to discussions around tightening monetary policy to curb inflation. However, the GDP expansion was in real terms. This means that inflation is not taken into account and the measure is looking at the increase in volumes produced, rather than increases in the money earned.

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