Rate cut still alive
WESTPAC’S economists think the Reserve Bank is correct to have left rates on hold at this week’s board meeting.
The central bank decided to leave the cash rate unchanged at 2.5 per cent. There was no change in the wording of the final paragraph from both the September and August meetings. Policy was described as ‘‘remaining appropriate’’ and the Board will continue to ‘‘assess the outlook and adjust policy as needed’’. ‘‘This paragraph is consistent with the Board having a neutral bias,’’ Westpac’s analysts said. ‘‘We will have to await the minutes which are released on October 15 to find out whether this easing bias has been retained.’’
Governor Glenn Stevens noted that savers are changing their savings preferences away from low-return low-risk assets to higher-risk assets. But he did not use that observation to highlight a property bubble risk.
Wespac saw only limited support for its view that rates are likely to be cut again in November. ‘‘We will need to see the minutes of this meeting. There are five weeks to the next meeting. Over that time there will be considerable developments in currency markets; the labour market; inflation; confidence measures and credit/housing markets that will decide whether the Board decides to cut further. Our forecasts point to that likelihood while recognising that it would not be a policy mistake to delay the decision to December to obtain even more information around the issues discussed above.’’