Interest rates remain on hold
As predicted by economists the Reserve Bank has left the official interest rate unchanged at 4.75% for the ninth meeting in a row. The bank last raised rates in November 2010.
A survey of 25 economists by Bloomberg before today’s meeting found that all of them expected the cash rate would be left at its current level.
The Australian dollar was trading down in a range between $1.051 and $1.055 in morning trading. The dollar rebounded slightly following the announcement, rising to $1.053.
The Commonwealth Bank expects the next rate movement to be up but has pushed back its forecast to February 2012 from an earlier November 2011 prediction.
Westpac is sticking by its forecast of up to 100 basis points being cut, starting in December.
The release of second quarter GDP figures tomorrow as well as future inflation figures (September quarterly inflation results are due out on October 26) will weigh heavily in decisions about interest rate changes.
ANZ is forecasting 0.6% GDP growth for the second quarter.
The decision will disappoint the Australian Retailers Association, which has demanded an early interest rate cut on expectations of more pain for the sector.
“Looking ahead to the spring season, retailers aren’t expecting a break, but rather a continuation of over 18 months of dismal trading conditions," ARA executive director Russell Zimmerman said ahead of today’s decision.
International uncertainty weighed heavily on the decision to leave rates unchanged, with RBA governor Glenn Stevens commenting that conditions in global financial markets have been very unsettled over recent weeks.
“As a result, the outlook for the global economy is less clear than it was earlier in the year. Some temporary impediments that had contributed to a slowing in growth in some countries over recent months, such as the supply-chain disruptions from the Japanese earthquake and the dampening effects of rising commodity prices, are lessening. But the uncertainty and financial volatility is reducing confidence and may result in more cautious behaviour by firms and households in major countries. A number of forecasters have scaled back their global growth estimates over the past couple of months,” Stevens says.
Domestically, Stevens says growth in wages has returned to rates seen prior to the downturn, though productivity growth has been weak.
Inflation remains a key concern: “Year-ended CPI inflation should start to decline towards the end of the year, as temporary weather-related effects reverse. But measures of underlying inflation have been increasing this year, after declining for the previous two years.
"While they have, to date, remained consistent with the 2–3 per cent target on a year-ended basis, the Board remains concerned about the medium-term outlook for inflation. A key question will be the extent to which softer global and domestic growth will work, in due course, to contain inflation,” Stevens says.
