This morning the RBA decided to leave the Cash rate unchanged at 2.5% in line with expectations. The statement was almost identical with the one from the previous meeting in September. Although the door for further rate cuts remains open there was no new information in today’s statement, which limits the probability for a rate cut at the next meeting in November.
According to the RBA growth remains below trend as the economy adjusts to lower levels of mining investments. Although the unemployment rate continues higher there are positive signs with improving sentiment indicators among households and businesses.
According to the RBA previous rate cuts have supported the economy and the effect is still coming through with signs of increased demand for finance by households. In contrast to previous statements the RBA dropped the phrase that the AUD “remains at a high level” and only concluded a weaker currency would support the rebalancing of growth.
With inflation close to target, positive signs from the economy and no expectations of a rate cut, the decision today was understandable. For our forecast of another rate cut at the next meeting we would have liked to see the RBA opening up the door further in today’s statement. As that was not the case we revise our RBA forecast and expect them to leave the Cash rate unchanged at the next meeting in November. Unless the situation in China deteriorates the RBA is likely to stay on hold for a foreseeable future.
SEB