Next rate move would be down: RBA

“The rate of inflation is clearly no impediment to easing”.

Yet earlier this week the central bank skipped on a chance to cut at its November policy meeting, leading investors to lengthen the odds on a move in December as well.

The Reserve Bank of Australia (RBA) surprised a few who were anticipating a reduction in the 2 per cent main rate, said portfolio manager Tamar Hamlyn, at Ardea Investment Management. From our perspective, we are leaving the cash rate on hold for December but that meeting is live, just like the [Federal Open Market Committee].

Yet, speculation about a cut had mounted after Australia’s major banks last month made a decision to lift mortgage rates in an effort to shield profits from rising regulatory costs. Speeches on Thursday by Mr Stevens and his deputy Philip Lowe and the RBA’s quarterly monetary policy statement on Friday – which contains its latest inflation and economic growth forecasts – will pad out the central bank’s thinking on the outlook. The rate has remained where it is since May but the board said a soft inflation outlook may leave room for a further rate cut if needed.

So, what will it take to make the RBA act?

That was a change from the October statement when no guidance on policy was offered. Misses in either direction have the potential to alter the market outlook for Australian interest rates and the Aussie Dollar. As a corollary, until the Australian dollar falls to the US60-65c range and remains there for an extended period, Macquarie believes the risk of further policy support from both fiscal and monetary authorities is high.

She said savers should shop around as banks had also moved interest rates on deposits.

“For mortgages, this increase is from the lowest rates that any current borrower will have ever seen”.

Next year APRA, the Reserve Bank and the Australian Bureau of Statistics will undertake a thorough review of the home loan data collected from Australian banks following the emergence of serious data issues that “concerned” the central bank.

Stevens said all available information suggested moderate expansion of Australia’s economy was continuing despite GDP being below longer-term averages while business surveys had indicated a gradual improvement in conditions. The broker finds this unusual as these are backward looking items.

Following the print of the September quarter Consumer Price Index markets priced a probability of a rate cut at around 70%.