Expect rates to remain on hold at September RBA meeting: HSBC

HSBC expects the Reserve Bank of Australia will keep interest rates on next week.

“We expect the RBA to hold the cash rate steady next week at 2.50%,” says chief economist Paul Bloxham.

“We expect confidence to improve after the federal election, on 7 September, though clearly there is considerable uncertainty regarding this outlook.

“The RBA’s next move is somewhat reliant on the AUD: a lower AUD would make further rate cuts less likely. In our view, the RBA would be more comfortable with the AUD closer to USD0.85.”

He says low rates are supporting the housing market but a broader rebalancing of growth is still yet to be seen.

He finds house prices are up 6.5% from their May 2012 trough and mortgage rates are at their highest levels in three years but it’s not quite enough.

“Outside of housing, there are, as yet, few signs of growth rebalancing,” he says.

He finds consumer sentiment has ticked up a little in recent months but remains around its long-run average.

And retail sales have weakened in recent months after showing some improvement earlier in the year. Business conditions and confidence also remain weak.

“Despite low interest rates and a declining AUD, businesses are unhappy. Part of this story seems to reflect political uncertainty, and concerns about the tax and regulatory environment,” Bloxham says.

“As a result, businesses remain generally unwilling to commit to large investment and hiring decisions.

“It may take time before the impact of the lower AUD flows through to firms’ willingness to make investment decisions. We do, however, expect that a broader rebalancing of growth will occur in time.”