28/08/2015 - 13:50

RBA unlikely to change rates

28/08/2015 - 13:50


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The Reserve Bank is expected to look through recent market turmoil and keep the cash rate unchanged for the foreseeable future.

RBA unlikely to change rates

The Reserve Bank of Australia is expected to look through recent market turmoil and keep the cash rate unchanged for the foreseeable future.

All 16 economists surveyed by AAP expect the RBA to keep the cash rate unchanged at its September meeting on Tuesday, and 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.

Early this week, the Chinese share market suffered falls of 7 per cent and 8 per cent on the back of concerns about its economy, which sparked losses in markets around the world.

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.

A rate cut in February is fully priced in and more bets have been placed on cuts for other months.

Despite this, JP Morgan Australia chief economist Stephen Walters doubts the RBA's interest rate stance has changed much since the August meeting.

"RBA officials are not known for jumping at the first appearance of shadows," he said.

"The main focus, then, most likely will be on the bank's commentary.

"There inevitably will be nods towards recent developments to our north and to the volatility in markets."

Mr Walters said that the RBA, while staying alert to any serious shocks from China, will shrug off short-term market volatility and focus on the performance of the Australian economy.

"The economy still is growing at a disappointing rate, but labour market outcomes have been decent enough," he said.

AMP Capital chief economist Shane Oliver said the RBA's focus would be on the slowly improving Australian economy.

"The RBA is expected to leave interest rates on hold consistent with its assessment that recent Australian economic data has been a bit better and unemployment a bit lower than previously expected," he said.

"However, of most interest will be any comments regarding recent financial market turbulence in relation to China/emerging market driven worries and in particular whether this suggests a strengthened easing bias."

Dr Oliver said the the falling Australian dollar would also encourage the central bank to keep the cash rate unchanged.


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