The Reserve Bank of Australia is set to leave interest rates on hold.
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“The combination of having already delivered 50 basis points of cuts in H1 and the more positive domestic numbers are expected to keep the RBA firmly on hold next week”, said Paul Bloxham, chief economist for Australia and New Zealand at HSBC.
As expected, the Reserve Bank left the official cash rate at a record low of 2.0 per cent for the third consecutive month.
Governor Glenn Stevens said the RBA will continue to monitor “economic and financial conditions” on whether the current level of support will stoke growth.
The local currency touched a six year low on Monday, due to the impact of the ongoing Greek debt crisis.
However, Citi’s economics team believes another rate cut will be needed by November to try and kick-start Australia’s economic growth. He noted fluctuations in markets related to developments in China and Greece, the first time he has name-checked the Mediterranean nation.
But he says for rising rates to have an effect, they would need to “at least” double to 4 per cent to take the heat out of the market.
Mr Stevens continued his call for a weaker exchange rate despite the Australian dollar’s recent falls against its United States counterpart, as investors pile into safe-haven currencies such as the greenback owing market ructions in Greece.
“In the absence of other sources of stimulus, this will mean the RBA will have to ease monetary policy further”. Low interest rates are acting to support borrowing and spending. Indeed, Sydney’s property market remains somewhat inflated which the Bank confirmed it was still working with other regulators to assess.
Traders are likely to have some concern that, as the NAB suggested, the RBA announces its monthly interest rate decision at 2.30pm on Tuesday in Sydney.
“Further depreciation seems both likely and necessary, particularly given the significant declines in key commodity prices“, he said.
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The Board today judged that leaving the cash rate unchanged was appropriate at this meeting.
