RBA ends year with cash rate hold

DECEMBER - Central bank board meets for its third gathering under new governor Philip Lowe on Tuesday.

At its final meeting for the year, the Reserve Bank has again chose to leave official interest rates on hold at the record low 1.5 per cent.

The board will not convene again until February.

The RBA held the cash rate steady at 1.50 per cent on Tuesday, saying it expects inflation to eventually return to target.

And that day of reckoning could have far reaching consequences for households and the economy.

"The message from consumers and businesses is that the major parties need to flesh out reforms, especially on taxation, that will give Australians confidence to spend, invest and employ".

Economists had predicted the Reserve Bank would be reluctant to move after recent softer-than-expected economic data. Job ads have started to accelerate while employment growth is heading in the opposite direction.

The Reserve Bank of Australia has pushed an increasingly optimistic story reflecting faster growth and falling unemployment, helped by an unexpected rebound in commodity prices in response to stimulus in China.

While increases in fixed rates for investors from Westpac and NAB grabbed the headlines, most in the markets preferred to focus on the National Accounts for the September quarter and their GDP reading.

All of these factors considered together mean more official rate cuts remain likely in 2017 unless economic activity improves.

"Indeed, the statement noted that higher [commodity] prices are providing a boost to national income", Mr Dales said in a note.

"We still see scope for lower rates in 2017, and expect 50 basis points of easing from the RBA in the first half of 2017". Globally, the outlook for inflation is more balanced than it has been for some time. Same with U.S. fiscal policy.

"If you're someone who prefers the certainty of knowing your repayments. you can lock in a rate as low as 3.8 per cent until Christmas 2021".

NAB will keep its standard variable rate for residential mortgages at 5.25 per cent, and lift its rate for investor loans by 0.15 per cent to 5.55 per cent.

U.S. bond yields slipped in reaction to the jobs numbers and Australian 10-year yields, which hit a 2016 high of 2.893 per cent on Friday, are likely to retreat at the start of trade on Monday.