Odds of October RBA cash rate cut increase, but November still most likely: ANZ

The fall in commodity prices and the persistently high Australian dollar have raised the likelihood of an October rate cut, but a November rate cut is still more likely, says ANZ research.

"The RBA will also be acutely aware of the negative implications for the Australian economy of the fall in bulk commodity prices and the persistently high Australian dollar.

"At the margin, the announcement of additional US Federal Reserve policy easing, which lifted the AUD/USD back above 1.05, suggests that the pressures on both the mining and non-mining sectors of the economy from the currency-commodity divergence will persist for some time.

"We maintain the view that the RBA needs to ease policy further and expect the cash rate to be lowered by 50bps over the next six months. The odds of a rate cut in October have certainly risen in recent weeks, but for now we’ll stick with our call for a November easing," says ANZ.

The latest Bloomberg survey of economists is unchanged from the previous week with just three economists – Stephen Koukoulas from Market Economics, Shane Oliver  from AMP Capital Investors and BNP Paribas’s senior Asia economist Dominic Bryant – expecting the RBA to cut interest rates on October 2.

Were the RBA holding its monthly monetary policy meeting on Monday rather than last week, it would have cut the cash rate, Business Spectator columnist and former Gillard government economist Stephen Koukoulas tweeted on Monday.

AMP Capital Investors chief economist Shane Oliver says the  minutes from the RBA’s last board meeting (out on Tuesday) will be looked at closely to see how concerned the bank is about China and the fall in the iron ore price.

"Our assessment is that the RBA is shifting back towards an easing bias ahead of the resumption of rate cuts in October. The ongoing rebound in the $A, and a continuing flow of sub-par reading for things like business and consumer confidence is only adding to the urgency for more interest rate rate cuts," says Oliver.