RBA leaves rates on hold

Westpac chief economist Bill Evans said the RBA is confident that inflation, now 1.5 per cent, will stay within the two to three per cent band for the next few years.

“In Australia, most of the available information suggests that moderate expansion in the economy continues”, he said.

The decision to leave rates on hold was tipped by the majority of economists, with money expert Michelle Hutchinson saying 78% of experts surveyed by finder.com.au do not expect a change to the rate at all this year. The group tries to gauge the likely outcome when RBA governor Glenn Stevens and his team meets to decide on interest rates every month. By contrast, traders see a 78 percent chance that the Reserve Bank of New Zealand will cut interest rates in its monetary policy statement on September 10.

Despite sluggish growth and a sharp fall in the terms of trade – the value of exports versus the cost of imports – the RBA is reluctant to cut rates further, preferring the weaker Australian dollar and already-low cost of credit to fuel investment, spending and non-mining exports.

The other 16 % believe rates will be cut again by the year’s end.

“Equity markets have been considerably more volatile of late, associated with developments in China, though other financial markets have been relatively stable”, today’s statement read.

As was the case in August, they noted noted that “the Australian dollar is adjusting to the significant declines in key commodity prices”.

“We expect the RBA Board tomorrow to keep a cool head, looking through the extraordinary volatility [in financial markets] of recent weeks”, she said.