September 2017 – Interest Rates Still On Hold
At the September meeting of the Reserve Bank of Australia (RBA), the cash rate was kept steady, but economists’ views on when we’ll see a change are starting to differ….
The board of the RBA announced it would hold the cash rate at 1.5% this month. This marks the 13th consecutive month without a change.
This decision was widely expected. So much so, future markets had priced in a 0% chance of a change from as early as 24 August.
Some words from the Economists…
Shane Oliver – AMP Capital
“While economic conditions and Australian growth are both improving, a lack of wages growth (both globally and domestically), paired with high debt levels is counteracting these positive forces.”
“Overall, the RBA’s bias on interest rates for now remains pretty neutral. Reflecting this and the RBA’s continued mild attempt at jawboning against a further gain in the Australian dollar is little changed from where it was before today’s RBA announcement,” he said.
AMP Capital remains of the view that the RBA will keep rates at 1.5% until at least late 2018.”
However, not everyone in the market shares Mr Oliver’s view that rates will stay at their current level for as long…
Paul Bloxham – HSBC
Prior to the RBA decision, Mr Bloxham indicated that it made sense to keep interest rates on hold. But his views for the future differs… “there remains a strong case for it needing to be lifted in the next six months” he said.
“The case for a higher cash rate is building and, on my assessment, it should be lifted within the next six months. Global growth is lifting, which is supporting commodity prices and boosting Australia’s national income,” he said.
“Surveyed business conditions are around decade-highs, corporate profitability has picked up and so has jobs growth. Underlying inflation is still below the bottom edge of the target band. The lift in growth should be expected to support a pick-up in underlying inflation over time. Monetary policy should be set with the forecasts in mind.”
Mr Bloxham said the current cash rate level was set with the intention of rebalancing the Australian economy following the end of the mining boom. He believes this goal has been almost fully realised.
Adapted from the published story on nestegg.com.au on 5th September by Killian Pastow