Still no compelling reason for RBA to change rates

The Reserve Bank of Australia will almost certainly leave the cash rate unchanged today, according to an analysis of the key economic indicators.

A RateCity analysis of 23 indicators found that 19 point to no change, while two suggest a rate cut and another two suggest a rate hike (see Rate Forecaster below).

RateCity’s money editor, Sally Tindall, said the markets were also expecting the cash rate to remain at a record-low 1.50 per cent, where it has been since August 2016.

“Data on unemployment, inflation, wages, retail sales and business confidence suggest the economy is steadily cruising along, meaning the Reserve Bank has no compelling reason to change the cash rate,” she said.

“Also, the banking regulator, APRA, has taken the heat out of the Sydney and Melbourne property markets, which means there is no longer pressure on the Reserve Bank to pop the bubble.

“With that in mind, it would be a big surprise if anything happened today, even if it can’t be completely dismissed.”

The case for change

Ms Tindall said one of the factors that may tempt the Reserve Bank to cut rates is Australia’s fragile consumer confidence.

“The other factor is the worryingly high Australian dollar, which has hovered around US$0.80 since mid-July. A rate cut would boost the economy by driving the dollar down and making our exports cheaper,” she said.

However, the Reserve Bank has just as many reasons to lift rates, according to Ms Tindall.

“Australia’s household debt-to-income level has reached a record 190.4 per cent – largely due to the supply of ultra-cheap money,” she said.

“Also, RBA governor Philip Lowe announced in a recent speech that the global trend of rising interest rates ‘should be seen as a positive development’ and ‘would, over time, be expected to flow through to us’ – which seems like a clear statement of intent.

“That said, the Reserve Bank currently has far more reasons to do nothing that act, so it is highly likely the cash rate will stay at 1.50 per cent for yet another month.”

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