‘Weak data piling up’ Economists expect RBA to hold steady

THE Reserve Bank is likely to hold the cash rate this week as it observes the effect of its cuts in June and July, though a pileup of dismal economic data may hasten the need for a further reduction.

Economists expect the central bank’s board to maintain a wait-and-see approach at today’s monthly board meeting, where members will consider whether recent easing and federal tax stimulus have given the economy the desired boost.

But a weak growth outlook – on top of a poor run of construction-related data and stubborn unemployment figures – could yet make the September decision a close call, says AMP Capital chief economist Shane Oliver, who believes another two rate cuts by the year’s end are a real possibility.

“The RBA should be cutting interest rates again (today) but looks likely to leave them on hold,” Dr Oliver said yesterday.

“While house prices in Sydney and Melbourne may be bouncing higher, growth looks to have remained very soft in the June quarter ... and there is no sign of any pick up in wages growth.”

At least two more rate reductions are expected by March 2020, with a cut to 0.75 per cent already fully priced in for November, and October increasingly likely.

The cuts in June and July – along with looser lending rules – helped property prices improve in August by the biggest margin since 2017, though RBA governor Philip Lowe has said further reductions remain a possibility if inflation continues to sag and jobs market slack continued to disappoint.

The central bank last month revised down its growth forecast for 2019, from 2.75 per cent to 2.5 per cent, however Dr Lowe also says the nation’s economy may have reached a “gentle turning point”, paving the way for growth to pick up again next year.

This sentiment will be tested by Wednesday’s GDP data, where economic growth is expected to have slowed to possibly the weakest outcome in 19 years. Economists had already moderated their GDP forecasts following a slew of weak data releases last week, with business investment, construction numbers, and building approvals all missing consensus forecasts.