Many Expect RBA to Sit for a While

Interest rates are expected to remain on hold for several months as the Reserve Bank keeps a close eye on a slowing economy, though the next move is still more likely to be a cut.  The RBA has left the cash rate at two per cent following May’s quarter of a percentage point cut, and RBA governor Glenn Stevens on Tuesday provided little guidance on any future moves.

The bank would monitor economic and financial conditions in the weeks ahead before considering its rates stance in a month’s time, he said.  CommSec chief economist Craig James said the RBA is withholding any talk of possible future rate cuts to spur borrowers into action.  “The hope is that businesses will now start to embrace the stimulus on offer, fearing that if they don’t, they will miss out on super low rates,” he said.

But the futures market gives the chances of another quarter of a percentage point rate reduction before the end of 2015 as roughly 50-50.  Many economists were disappointed with the RBA’s lack of guidance on future moves, particularly after the release of disappointing business investment figures last week, and therefore maintained their expectations of no move until at least late in 2015.