RBA cash rate widely predicted to hold

by Miklos Bolza01 Nov 2016
The Reserve Bank of Australia (RBA) will hold the cash rate at 1.5% according to many of the nation’s leading economists.
Only three out of the 33 economists surveyed predicted a rate cut today, according to finder.com.au’s latest survey.
Graham Cooke, the firm’s insights manager, said that traditionally Melbourne Cup day has been seen as a day of rate changes.
“For many Australians, the first Tuesday of November is synonymous with the race that stops a nation. But for mortgage holders, it’s also a day of worry that the [Reserve] Bank may up the cash rate while the limelight is on the track.”
However a look at historical data shows that the rate has more often risen than fallen on this day, he said. Over the past 10 years, the rates have decreased four times during the Melbourne Cup.
“The odds are looking slim for a Melbourne Cup day rate cut, with the RBA set to hold the official cash rate again at 1.5%. The latest inflation figures were always going to play a big part in the RBA’s decision, and with inflation creeping in a little stronger than expected, there is no need for any action yet,” said Lynne Jordan, general manager of risk at Liberty.
“Strong east coast property markets, combined with the diminishing impact of cutting already record-low interest rates, should see the RBA hold the cash rate over the short term,” said Grant Harrod, CEO at LJ Hooker.
Stephen Koukoulas, managing director of Market Economics was one of the few economists to predict an RBS rate decrease today.
“Inflation has been undershooting the RBA target for two years and shows no signs of lifting. The recent CPI saw the lowest quarterly and annual underlying inflation result on record. The RBA needs to cut rates to try to get inflation back to its target range.”
Out of the 26 economists who answered the survey’s long-term forecast question, only three predicted a rate cut in December while 23 said that a rate cut would occur in the first half of next year.
Twenty-nine economists discussed how low they thought the rate would go this cycle. Out of these, seven expected the rate to bottom out at 1.25%, seven said it would stop at 1.00%, while five predicted rates would drop even lower. Ten expected that rates would not drop further than 1.5%.
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