The RBA chose to leave rates unchanged at its 3 November board meeting. The cash rate remains at 2.00%. Governor Glenn Stevens, in the accompanying media statement, pointed to the global economy still being very accommodative and noted that some central banks were looking to raise rates in the ‘period ahead’ while others were still easing. In Australia a “moderate expansion in the economy continues” and that “prospects for an improvement in economic conditions had firmed a little over recent months.”
With regard to inflation, Stevens noted that “Inflation is low and should remain so, with the economy likely to have a degree of spare capacity for some time yet. Inflation is forecast to be consistent with the target over the next one to two years, but a little lower than earlier expected.”
Westpac’s senior economist Bill Evans was not surprised that the RBA kept rates on hold. He said that the recent inflation print “allowed the Bank scope to cut if it so desired but that decision would be predicated on a substantial downward revision in the outlook for economic growth.” He didn’t see a downward revision at this point to justify a rate cut and remained of the view that rates would remain at 2.00% throughout 2016.
The market is almost pricing in a full rate cut by February (the RBA board meeting does not meet in January although could agree in advance to alter rates between meetings if certain conditions are met) but by then the RBA will have the benefit of seeing the December quarter CPI, economic activity around Christmas and whether the US Fed has raised interest rates for the first time in over 8 years.