Interest rates set to remain on hold, but for how long?

Andrew Cummings
November 6, 2019

The RBA delivered its third 0.25 percentage point cut in five months in October but is expected to keep that rate at 0.75 per cent on Tuesday while it waits to see whether the record low borrowing costs and Government tax handouts do anything to lift inflation closer to the 2 to 3 per cent it believes would support sustainable economic growth. The RBA Shadow Board's conviction that the cash rate should remain at the new, low rate of 0.75% equals 64%, while the confidence in a required rate cut is 8% and the confidence in a required rate hike 27%.

SYDNEY-Australia's central bank on Tuesday kept its benchmark rate unchanged, balancing the need to keep pace with falling rates globally against any unintended harm low rates could be doing to the local economy. In Sydney, prices jumped 1.7% last month and are up 5.3% since May.

However, economists nearly universally predict further cuts are inevitable in the coming months. Lowe is trying to push down the jobless rate in order to spur wage growth and revive inflation.

And while the Reserve Bank will issue its cash rate decision, they will be another indicator of consumer confidence this afternoon.

Lowe said today the central scenario is for the economy to expand around 2.25% this year - a quarter-point less than forecast three months ago - and then "gradually to pick up" to around 3% in 2021, in line with its August assessment.

The risk for the RBA is that low interest rates do little to support growth outside of inflating house prices, which are rising again in major cities after a two-year slowdown.

Mr Frydenberg said monetary policy stability was key during the current global economic uncertainty.

"Improved access to credit following APRAs decision to adjust the interest rate serviceability floor are contributing to a rebound in housing market conditions".

Inflation is one measure by which the judgement is made, edging higher to 1.7 percent according to the latest data, but remaining firmly below the RBA's target of 2-3 percent.

The Reserve Bank is widely expected to resist a Melbourne Cup Day interest rate cut despite some more gloomy economic figures.

Dr Rynne said rate cuts in other countries - the US Federal Reserve eased last week for the third time this year - meant that economic assist from the lower Australian dollar was diminishing in strength.

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