The RBA decision to maintain the official cash rate at 2.00% came as no great surprise to the markets, although the Aussie dollar went 0.50 cents higher immediately after the decision. The RBA seems satisfied with the level of the currency and no longer thinks further depreciation seems both likely and necessary as it did in a previous statement. As in past statements, the RBA expressed some positive views of Australian unemployment rates and moderate economic growth while acknowledging “spare capacity” and offshore weakness. Inflation is expected to remain at the Bank’s target for the next year or two. “In such circumstances, monetary policy needs to be accommodative.”
JP Morgan thought the statement was not materially different from the August one and expected rates to stay on hold until the final quarter of 2016 while TD Securities strategist Prashant Newnaha said “doves” would be disappointed by the statement. On the other hand, AMP’s Shane Oliver thought the RBA’s reference to the “economy operating at spare capacity for some time” was an important point but then said, “If the RBA does have a dovish bias, it is very mild one.” RBC Capital Markets senior economist Su-Lin Ong took a stronger position. “We still have two cuts in our profile, one towards the end of 2015 and another in mid-2016 which takes cash to 1.5 per cent”. She thinks a weak China, lower commodity prices and weaker capex will force the RBA’s hand to cut rates to 1.5%. Westpac’s chief economist Bill Evans said that rates would stay at 2.00% throughout 2016.