Financial stability reason for unchanged OCR

Prior to this morning’s monetary policy statement (MPS), commentator expectations had largely changed from a June cut to a preference for a cut in August instead.

For this reason, Governor Graeme Wheeler’s announcement today that the OCR would remain at the already record low of 2.25% took few economists by surprise.

Westpac chief economist Dominick Stephens said the Reserve Bank’s decision was very much in line with his expectations.

In the MPS, the Reserve Bank sounds more constructive on the economy and more confident that inflation is rising towards their 2% target, he said.

“That gives them time to hold the OCR at 2.25% a bit, but they maintained their easing bias language, saying ‘Further policy easing may be required’.

“The 90-day interest rate forecast was unchanged from March and settles at 2.1%, indicating one more OCR reduction.”