Source: BloombergWhile Prime Minister Kevin Rudd may be hoping for another rate cut on Tuesday to help boost his election campaign before next weekend, the Reserve Bank is unlikely to oblige.
The overwhelming consensus among economists is that the RBA will leave the official cash rate on hold at 2.5 per cent, its lowest point since 1959.
After cutting the official cash rate 225 basis points since November 2011, with the most recent cut last month, the RBA is likely to wait for the cuts to trickle down through the economy.
It’s going to be ”a non-event from the RBA”, Deutsche Bank economist Phil O’Donaghoe said.
”[What was] extraordinarily clear from the RBA minutes is that they didn’t want to send a signal to the market that a rate cut was imminent.”
Interest rate futures are pricing in just a 7 per cent chance of a rate cut on Tuesday.
However, the chances of a rate cut increase drastically in November are moving out to 60 per cent while the chances of a December rate cut is running at 76 per cent.
While predicting the RBA will hold fire this month, Macquarie economist Gabby Hajj said the investment bank was expecting two more cuts this year in October and December if employment, retail trade and business confidence continued to weaken.
”We definitely believe they retain their easing bias, but it’s more likely they’ll sit back and watch the data over the next month before they act again,” Mr Hajj said.
Last week’s capital expenditure figures highlighted that investment intentions among business for this financial year have deteriorated and are likely to continue to do so, he said.
As the mining investment boom winds down, the RBA has been counting on the housing sector to pick up some of the slack, and noted in its August minutes that the transition, although slow, had begun.
”Dwelling prices increased further in recent months and auction clearance rates remain high. This has been accompanied by an increase in housing loan approvals in response to low interest rates,” the RBA’s statement on monetary policy said.
The central bank went further to say that as the population continued to grow, it expected a rise in dwelling investment.
Another factor in determining whether the RBA will cut the cash rate later this year is the timing surrounding the tapering of the US Federal Reserve’s $US85 billion bond buying program.
The Fed has been keen to begin winding down stimulus as soon as September, but a potential conflict in Syria could see that delayed, which could put upward pressure on the Australian dollar and force the RBA to act. The Australian dollar has fallen 15.5 per cent since its peak this year to US89.01¢, but the RBA has implied it would like to see it fall further.
The original release of this article first appeared on the website of Hangzhou Night Net.