Holding the Line

The Reserve Bank of Australia left the official cash rate at 1.50% at its board meeting on Tuesday, 6 September, the last key event in Glenn Stevens’ leadership of the central bank before he hands the governor’s reins over to current deputy governor Philip Lowe.


Having already cut the benchmark rate by 0.5 percentage points to 1.5% in 2016 – 0.25 percentage points in May and 0.25 percentage points in August – Ord Minnett believed a change in the cash rate in September was unlikely. Reasonable domestic economic data leaves the RBA with some breathing space, at least until the next set of inflation data is released on 26 October.


That said, we do not believe the central bank has reached the bottom for the cash rate in this current cycle, and forecast further easing of 0.5 percentage points in the cash rate in 2017.


Tuesday’s statement explaining the decision to leave rates unchanged in September offered little new in the way of commentary on the broader economic picture.


The bank still described inflation as “quite low”, labour market indicators as “somewhat mixed” and the global economy as still “…continuing to grow, at a lower than average pace”.


Commentary on the domestic economy, however, did change slightly, with the RBA noting that “…recent data suggest that overall growth is continuing”. In August, the bank had observed that “…overall growth is continuing at a moderate pace”. It is not clear if this minor change represents an upgrade to the outlook (or otherwise), but we have not seen much in recent data that we believe would prompt a major reassessment in either direction.


Financials markets appeared sanguine with the lack of an explicit easing bias in this month’s statement, with Australian dollar and front-end rates very subdued in the wake of the bank’s decision.


Lowe officially takes over from Stevens as RBA governor on 18 September, with one of the bank’s current five assistant governors, Guy Debelle, taking over from Lowe as deputy governor at the same time. Debelle’s replacement has not yet been appointed.

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