Re­serve Bank likely to keep freeze on rates

Kalgoorlie Miner - - BUSINESS - Syd­ney

The Re­serve Bank is un­likely to budge from its neu­tral in­ter­est rate stance next week, but it may ramp its eas­ing bias up a notch.

All 14 econ­o­mists sur­veyed by AAP ex­pect the RBA to keep the cash rate un­changed at its Fe­bru­ary meet­ing on Tues­day, and eight ex­pect them to re­main on hold for the rest of the year.

The cen­tral bank cut its in­ter­est rate by a quar­ter of a per­cent­age point last Fe­bru­ary and again in May, tak­ing the cash rate to a new record low of 2 per cent.

Mar­kets are pric­ing in about a 4 per cent chance of a rate cut next week, al­though one is fully priced in by July.

The RBA faces a trade-off be- tween its de­sire to boost growth, to keep in­fla­tion in check, and the risks that lower in­ter­est rates could pose to fi­nan­cial sta­bil­ity, HSBC chief econ­o­mist Paul Blox­ham said.

“Aus­tralia’s labour mar­ket con­tin­ues to show signs of im­prove­ment, which should keep the RBA on hold for now,” he said.

“How­ever, in­fla­tion is low and fore­cast to stay sub­dued, leav­ing the RBA with scope to cut fur­ther.”

The De­cem­ber quar­ter CPI fig­ures show that the RBA’s pre­ferred mea­sures of un­der­ly­ing in­fla­tion just scraped in at the bot­tom of the bank’s 2 to 3 per cent tar­get band.

With growth tipped to run below trend for a fourth con­sec­u­tive year, HSBC ex­pects un­der­ly­ing in­fla­tion to drift below the tar­get band.

“We ex­pect low in­fla­tion to drive a fur­ther cash rate cut in quar­ter two, un­less the Aus­tralian dol­lar sees a tan­gi­ble fall be­fore then,” Mr Blox­ham said.

While AMP Cap­i­tal chief econ­o­mist Dr Shane Oliver does not ex­pect the RBA to cut rates on Tues­day, he does think the bank will strengthen its eas­ing bias.

“It’s doubt­ful that the lat­est bout of fi­nan­cial and com­mod­ity mar­ket tur­moil has been enough to move the RBA out of its chilled-out state just yet,” he said.

But global jit­ters and fall­ing com­mod­ity prices com­bined with slug­gish do­mes­tic growth, tepid in­fla­tion and slow­ing mo­men­tum in the hous­ing sec­tor will re­in­force the RBA’s dovish out­look, he said. AAP

Pic­ture: AAP

The Re­serve Bank is ex­pected to keep its cash rate on hold next week.

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