Finance Finance News RBA rate cut still a possibility

RBA rate cut still a possibility

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The Reserve Bank of Australia is holding fire on interest rates, but says another cut is possible.

Most forecasters, including economists from all four of Australia’s major banks, are now saying that a rate cut is not likely to happen until early 2014.

Most have changed their predictions in the past two weeks.

The RBA’s willingness to wait was made clear in the minutes of its October 1 board meeting which repeated a line, word for word, from the September minutes.

“Members agreed that the bank should neither close off the possibility of reducing rates further nor signal an imminent intention to reduce them,” the RBA said on Tuesday.

NAB senior economist Spiros Papadopoulos said the central bank would be hopeful that its recent cash rate reductions were enough to support long term economic growth.

“The effect of lower interest rates still has further to run, but the impact in the housing market is already evident, with gains in prices, auction clearance rates, loan approvals and credit growth,” he said.

The RBA last reduced the cash rate in August by quarter of a percentage point to a record low of 2.5 per cent.

It said international economic conditions had improved recently, with Chinese growth getting stronger, and signs the US economy was continuing to grow at moderate pace.

The minutes made only brief mention of the stalled US budget negotiations, which resulted in the US government shutting down on the day of the October 1 board meeting.

Australian economic growth remains a little below average, with investment in both the mining and non-mining sectors staying subdued, the bank said.

“Consumer confidence was above average levels and business confidence had increased, although it remained to be seen if this would be sustained,” the RBA said.

An important aspect of the RBA’s statement was that it made little mention of the high exchange rate, RBC Capital Markets senior economist Su-Lin Ong said.

“We doubt that the RBA is particularly comfortable with the level of the Australian dollar behind closed doors, but it appears to have stopped jawboning on this front,” she said.

“On its own, we do not think the Australian dollar will trigger the RBA’s easing bias, but it will keep this bias intact.”

Ms Ong said the case for the RBA to reduce the cash rate from its already historically low level would need to be compelling.

“It may take time for this case to build, and our base case for a final 25 basis point cut in December looks unlikely,” she said.

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