RBA likely to keep cash rate on hold
THE Reserve Bank is expected to look through recent market turmoil and hold the cash rate for the foreseeable future.
Of 16 economists surveyed, all expect the RBA to keep the cash rate unchanged at its September meeting tomorrow. Only three expect another cut before the middle of next year.
The central bank cut its interest rate by a quarter of a percentage point in February and again in May, taking the cash rate to a new record low of 2 per cent.
Last week, the Chinese sharemarket suffered falls of 7 and 8 per cent over concerns about its economy, sparking losses in global markets.
The futures market responded by betting on an increased chance of an RBA cash rate cut, with pricing for a September reduction going as high as 16 per cent from 6 per cent last week.
But JP Morgan Australia chief economist Stephen Walters doubts the RBA’s interest rate stance has changed much.
“RBA officials are not known for jumping at the first appearance of shadows,” he said.
Mr Walters said the RBA, while staying alert to serious shocks from China, will shrug off short-term market volatility and focus on Australia’s economic performance.
AMP Capital chief economist Shane Oliver agreed the domestic economy was the priority. He also said the falling Australian dollar would encourage the central bank to keep the cash rate unchanged.