Is the RBA's on hold period unusual?
The extended period of steady interest rates seems unusual to some exasperated market analysts, and has led some to suggest it’s a particularly boring period for “RBA Watching.”
It begs the question: is the latest period of steady interest rates particularly unusual?
A look at history suggests it is somewhat unusual, but not unprecedented. On current trends though, there’s a good chance the record period of steady interest rates set back in the mid-1990s could be broken early next year.
Since the RBA began publically announcing monthly interest rate changes in 1990, there have been six previous periods in which interest rates have remained on hold for at least 12 months. The longest period of steady interest rates was 19 months, between December 1994 and July 1996.
Only as recently as 2011, moreover, interest rates were left on hold for 11 months.
What’s normal? Note the average period in which interest rates have remained on hold since mid-1990 is 4 months, with a standard deviation of 4.5 months. So the current period of steady official interest rates is almost 2 standard deviations from the average.
In short, while it’s not unprecedented for interest rates to remain on hold for at least a year, it’s still relatively unusual. Of course, economic conditions are always changing, so even though the RBA has left policy on hold for a considerable time, it does not obviate the need to keep watching the economy very closely.
It will still take another 6 months of no change from the RBA for the record 19 month stretch of steady interest rates back in 1994-1996 to be broken. Based on the current economic outlook, that’s a very real chance, as it would require an interest rate move by April 2015.
For more of David Bassanese's Market Insights, go to the BetaShares blog. For more information on BetaShares products, visit the main BetaShares website.
Frequently Asked Questions about this Article…
The Reserve Bank of Australia has kept interest rates on hold for 14 months due to current economic conditions. While this period seems unusual, it's not unprecedented, as there have been similar stretches in the past.
Yes, a 14-month period of steady interest rates is relatively unusual for the RBA. Historically, the average period of unchanged rates is about 4 months, making the current period almost 2 standard deviations from the norm.
The longest period the RBA has kept interest rates unchanged was 19 months, from December 1994 to July 1996. The current period could potentially break this record if rates remain steady until April 2015.
Since the RBA began announcing monthly interest rate changes in 1990, the average period of unchanged rates has been about 4 months. However, this can vary significantly based on economic conditions.
The RBA considers various economic conditions when deciding on interest rates, including inflation, employment, and overall economic growth. These factors help determine whether to adjust rates to support economic stability.
Yes, if the RBA continues to hold interest rates steady for another 6 months, it could break the historical record of 19 months set between 1994 and 1996.
Monitoring RBA interest rate decisions is crucial for investors as changes can impact borrowing costs, investment returns, and overall economic conditions, influencing market dynamics and investment strategies.
For more insights on the RBA's interest rate decisions, you can visit the BetaShares blog, where David Bassanese provides detailed market insights and analysis.
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