RBA leaves cash rate unchanged

Although the European Central Bank (ECB) is widely expected to expand its quantitative easing program at Thursday’s policy meeting, stronger inflation could prompt policymakers to opt for more moderate measures.

AMP Capital’s chief economist Shane Oliver predicted the cash rate would remain unchanged, citing the RBA’s satisfaction with current levels in view of the “rebalancing of the economy”.

“Mr Stevens has also noted that interest rate cuts have less of a stimulating effect than they once did, due to rates already being at record lows, and a rate cut may not be the most effective strategy at this time”, she added.

Interest rates are kept low by central banks when a nation’s economy is in a lull to encourage consumer borrowing and spending through lower interest rates charged on personal, auto or mortgage loans.

“The reason that AUD has rallied is that markets priced out one RBA cut after having two cuts priced in”.

All 13 economists surveyed by AAP expect the RBA to keep the cash rate at two percent at its December meeting on Tuesday, but six are predicting that there will be a cut early in 2016.

In such circumstances, monetary policy needs to be accommodative.

“The confidence attached to a required rate cut equals 22 per cent, down four percentage points from the previous month, while the confidence in a required rate hike has risen slightly to 11 per cent”, the statement said.

“Members also observed that the outlook for inflation may afford scope for further easing of policy, should that be appropriate to lend support to demand”, he said.

Stevens, who had to cool the economy during Australia’s biggest commodity price boom in 150 years, is now trying to manage the fallout from its end.

“Credit growth has increased a little over recent months, with credit provided by intermediaries to businesses picking up”.

The meeting comes in an environment of Aussie dollar strength within which we have seen the pound to Australian dollar (GBPAUD) shift lower in a downtrend that has been in place since September.

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