The Reasons Behind the RBA December Rate Decision [video]

The Reserve Bank Board held its final meeting for 2015 on Tuesday 1st December and decided to keep official interest rates on hold at 2 %.

Strong employment data

Factors influencing the RBA’s decision include better than expected employment data in October, which showed non-mining sectors such as tourism, education and services are actively employing following the positive impact of the depreciating Australian dollar.

Business investment subdued

Business investment has been elusive for most of 2015.

This seems to be more a factor of confidence, as Australian companies have balance sheet capacity to invest.

The change in Federal Government leadership and new narrative of innovation and investment has the potential to lift confidence in 2016.

Global economic drivers

Globally, 2015 has been dominated by a strengthening US economy, a surprisingly stable Chinese economy, Japan and Europe struggling to make headway, emerging economies impacted by sluggish global trade as well as the potential of rising US interest rates and appreciating US dollar.

Macquarie’s view is that 2016 is likely to be a continuum of this cycle thematic, and expects the RBA will maintain its easing bias in 2016.

However the direction of the Australian currency after the US raises interest rates in mid December, will determine a possible February 2016 rate cut.

The first RBA board meeting for 2016 will be held on Tuesday 2nd February.


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