“Rumours of a rate hike in the U.S. are expected to apply downward pressure on the Australian dollar, meaning the Reserve Bank’s timeline for an additional rate cut could be pushed back to early next year”, Ms Jordan added.
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Numerous experts cited soft inflation and a stubborn Australian dollar as the reason the RBA will choose to hold the rate, explaining that the bank remains in “wait and see” mode.
The Reserve Bank has kept its cash rate on hold at an all-time low in the final board meeting presided over by governor Glenn Stevens before he bows out after a decade that has seen the cash rate drop from 6 per cent to 1.5 per cent.
Whether it be markets or economists, nearly no one expects that interest rates will change today. “With monthly indicators of inflation remaining low and the Australian dollar remaining relatively high, there remains a strong chance of another rate cut later this year”, he said.
Having already pulled the trigger on easings in May and August, the RBA is likely to wait for them percolate through the economy before deciding if yet more stimulus is needed.
Commodity prices are above recent lows, but this follows very substantial declines over the past couple of years.
He said domestic demand and exports were driving economic expansion.
The word “overall” was an addition to this month’s statement, perhaps in acknowledgement that some recent home price information has suggested that prices in Sydney and Melbourne are still growing very strongly.
“Unless the dollar strengthens, the outlook for growth weakens and/or underlying inflation is weaker than expected, the RBA is unlikely to feel the need to cut rates in November”, he wrote in a note.
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“While we don’t expect underlying inflation to fall further, we don’t think it will rise towards the bottom of the 2-3 per cent target range next year as the RBA expects”. “The RBA is likely to be keeping a keen eye on the housing market; since the May rate cut and subsequent cut in August, numerous key housing market indicators have bounced higher”.
