The RBA left the cash rate unchanged at its September board meeting in a widely-expected decision. Few, if any, economists expected another rate cut so soon after the August 25bps rate cut and so economists and other observers were really only looking for clues as to the RBA’s thinking.
According to Westpac’s Bill Evans the RBA’s statements regarding inflation, employment and the global outlook were unchanged. “Inflation continues to be described as “quite low” and is expected to remain so for some time. Labour market indicators are still described as “somewhat mixed”. The global outlook remains the same. The global economy is expected to grow at a lower than average pace and “China’s growth appears to be moderating”.
However, he does note the change in the language surrounding house prices and hence the likelihood of another rate reduction. “Today’s statement really only provides a reasonable signal that the confidence around housing we saw in August has been shaken a little, slightly lowering the chances of that November cut…Overall we do not expect any change at the October meeting and are also anticipating steady rates in November.”
CBA senior economist Michael Workman took a different view. “The housing market commentary remains interesting….The RBA sees the tighter lending guidelines implemented by APRA as reducing the risks that were building in the housing market. Additionally, the large amount of new supply to be delivered over the coming year, mainly apartments in the major cities, should moderate price growth in that segment. We still expect another RBA rate cut at the November meeting after the next inflation update in late October.”
Cash markets responded to the RBA statement by reducing the likelihood of rate cuts in the short term. After the decision, the probability of an October rate cut edged down to 8%, while a November cut went from 44% to 34%. The months of February, May, August and November are viewed as the most likely months for RBA changes for three reasons; they are placed shortly after quarterly CPI figures are released, they follow the quarterly Statement on Monetary Policy reports and they are the months in which most RBA rate change decisions have been made in the past.