RBA Likely to Sit on Rates

The Reserve Bank of Australia will keep interest rates on hold when it meets next week, and is unlikely to try to talk down the local currency despite a mini-rally this year, say some of the country’s foremost economists. A Fairfax survey of 10 senior bank and market economists found consensus that the central bank will leave the cash rate at 2 per cent for the ninth board meeting in a row next Tuesday.

However, the field is divided on monetary policy for the rest of the year, with Nomura’s Andrew Ticehurst, BetaShares’ David Bassanese, AMP Capital’s Shane Oliver, ANZ Bank’s Warren Hogan and Paul Bloxham from HSBC still predicting at least one further cash rate cut this year. “The Australian economy probably still needs some more help from the RBA in terms of another interest rate cut – both directly in terms of its impact on growth and also indirectly in terms of maintaining downwards pressure on the value of the Australian dollar,” said Dr Oliver. “But with the RBA seeming to be relatively relaxed at present, it’s clear that a rate cut is still several months away in the absence of a rapid deterioration in economic indicators.”

The RBA’s chilled out view of the Australian dollar, which has held steady above US70¢ for most of the year – and this week hit a seven-week high of US72.59¢ – has convinced most of the economists that Governor Glenn Stevens will resist “jawboning” it in Tuesday’s policy statement. “We have thought the RBA’s comfort zone on the currency was US70¢ to US75¢,” said Commonwealth Bank of Australia chief economist Michael Blythe. “When we got into that band, that’s when they stopped jawboning the Aussie. “So we don’t expect renewed commentary in next week’s statement,” he said.