Australia central bank to sit on rates as economy jogs along

Australia: Most respondents looked for rates to stay on hold to the end of the year, though the median forecast favoured one final easing to 1.25 per cent during the first quarter of 2017.

By: Reuters | Sydney | Published:September 5, 2016 10:20 am
australia, australia business, australian economy, australia central bank, australia bank, australia growth, business australia, world news Having already pulled the trigger on easings in August and May, the Reserve Bank of Australia (RBA) is likely to pause and watch them percolate through the economy before deciding if yet more stimulus is needed. (Source: File Photo)

Australia’s central bank is overwhelmingly expected to keep interest rates on hold at its September policy meeting this week, the last to be chaired by long-standing governor Glenn Stevens before he retires this month. A batch of generally upbeat data out on Monday underlined the case for a steady outcome as vehicle sales and job ads both rebounded in August, while analysts nudged up predictions for economic growth last quarter.

Having already pulled the trigger on easings in August and May, the Reserve Bank of Australia (RBA) is likely to pause and watch them percolate through the economy before deciding if yet more stimulus is needed. This is the modus operandi it followed last year when it cut in April and May, and then sat on the sidelines for 12 months.

“After cutting twice in the past four months, unless the economy was clearly deteriorating dramatically, the Bank would likely enter assessment mode,” said Ivan Colhoun, head of markets economics at NAB, in a view that was widely shared. All 33 economists polled by Reuters expected a steady outcome at Tuesday’s policy meeting, and financial markets are pricing in the smallest of chances for a cut.

Most respondents looked for rates to stay on hold to the end of the year, though the median forecast favoured one final easing to 1.25 per cent during the first quarter of 2017. The recent rate cuts were driven largely by an unexpectedly sharp slowdown in inflation and a need to prevent the local dollar from rising too far in reaction to other policy easings around the globe.

Activity in the domestic economy has been resilient overall, if not barnstorming. Figures for gross domestic product due out on Wednesday are forecast to show modest growth of around 0.4 per cent in the second quarter, though mainly as payback for a very strong 1.1 per cent jump the previous quarter. Annual growth was still seen ticking up one tenth of a per cent to 3.2 per cent, the fastest pace in almost four years.

Data out Monday showed a build up in inventories added around 0.2 percentage points to GDP, while company profits handily topped expectations. Josh Williamson, an economist at Citi, is more bullish, predicting a quarterly increase of 0.7 per cent and 3.5 per cent for the year.

“The RBA will likely be pleasantly surprised by today’s data, particularly the breadth of company profits growth across industries and the acceleration in wages and salaries.” Other figures from ANZ showed job advertisements bounced 1.8 per cent in August, while the motor industry reported new vehicle sales were up 4.6 per cent versus August last year. Notably, sales of light commercial vehicles to business customers surged by over 34 per cent for the year and sales of SUVs to business were up 31 per cent, auguring well for investment spending.