Rates set to stay on hold

The Reserve Bank appears unmoved by the recent routs on global share markets and is likely to keep the cash rate unchanged for some time.

杭州桑拿

The cash rate was left at a record low of two per cent for a fourth straight month after the RBA’s September board meeting.

Governor Glenn Stevens noted recent market volatility, but also said the US economy is strengthening, and the US Federal Open Market Committee (FOMC) would soon raise its interest rate for the first time in over nine years.

Westpac chief economist Bill Evans expects the RBA to keep rates on hold well into 2016.

“Despite the market pricing in a 100 per cent probability of a rate cut by year’s end, Westpac continues to expect that rates will remain on hold over the course of 2015 and 2016,” he said.

RBC Capital Markets head of economics Su-Lin Ong said Mr Stevens’ reference to weakness in the Chinese economy was only minor.

Share markets around the world plunged early last week, most notably China’s, on the back of worries about its slowing economic growth.

While the local market has since recovered some of its falls, August was its worst month since the global financial crisis, and Wall Street endured its worst month in three years.

“I guess they need to say something given that it’s the key development since the last meeting but they don’t say much more than that,” Ms Ong said.

The RBA is clearly waiting for the FOMC decision later in September, she said.

A Fed rate hike will boost the US dollar and push the Australian dollar even lower, making locally produced goods more competitive with imports.

Commonwealth Bank chief economist Michael Blythe said the RBA is now more upbeat about the Australian economy.

“The Australian dollar had finally reached levels the RBA was comfortable with and unemployment had peaked sooner and at a lower level than expected,” he said.

The RBA’s forecast of economic growth between two and three per cent in 2015/16 appears likely, Mr Blythe said, although it may come on stronger than expected consumer spending offsetting weaker than expected business investment.

ANZ and Roy Morgan’s weekly consumer confidence survey, also out on Tuesday, showed sentiment remains above its long term average.

The manufacturing sector is also gathering strength, with activity rising for a second straight month in August, according to the Australian Industry Group’s Performance of Manufacturing Index.