Following the bank’s board meeting in Perth today, its first meeting in the city in more than four years, it made a decision to keep the official cash rate at 2 per cent.
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RBC Capital Market’s chief economist Su-Lin Ong believes further cooling in the housing market combined with another side in commodity prices and a strengthening by the Aussie dollar could pave the way for a rate cut in 2016.
According to available information, moderate expansion in the economy continues in Australia while there is a large decline in capital spending in the mining sector.
Inflation was low, employment growth solid and there were indications conditions in non-mining sectors were gradually improving, he added.
Our forecast that GDP growth won’t rebound as the RBA is expecting next year and that underlying inflation will fall further suggests that early next year the RBA will have to abandon its plan to talk up the economy and return to the tried and tested tactic of cutting rates.
“Mr Stevens has also noted that interest rate cuts have less of a stimulating effect than they once did, due to rates already being at record lows, and a rate cut may not be the most effective strategy at this time”, she added. “Supervisory measures are helping to contain risks that may arise from the housing market”.
The decision to hold was widely expected and the Australian dollar held steady at around US72.60c before climbing to around US72.75c.
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The RBA had held rates steady at 2.5 per cent for the 18 months following August 2013 until its February move, which it then followed with a subsequent cut in May. The RBA maintains that the economy is traveling pretty well given the scale of the drop in mining investment, with the unemployment rate stabilizing at a little under 6 percent. “The one thing that deters or concerns people purchasing property either as an investor or an owner-occupier is when rates are moving around, ” he said. Nationally, prices eased 1.5 percent for the month while annual growth cooled to 8.2 percent.
