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Economists are betting against a Melbourne Cup rate cut

Left: RBA Governor Philip Lowe. Image: A trackwork session at Flemington Racecourse in Melbourne, Tuesday, October 29, 2019. (AAP Image/Vince Caligiuri)
Left: RBA Governor Philip Lowe. Image: A trackwork session at Flemington Racecourse in Melbourne, Tuesday, October 29, 2019. (AAP Image/Vince Caligiuri)

Australian economists and experts are predicting that the Reserve Bank of Australia won’t be making any moves to the official interest rate tomorrow.

All of the economic and property experts surveyed by Finder – more than 40 in total – said that the RBA would keep rates on hold on Melbourne Cup Day.

Experts are in agreement that the RBA is likely to hit pause after having slashed the interest rate three times already this year.

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“At this stage, it is likely the RBA will take a wait and see approach,” said to realestate.com.au’s chief economist Nerida Conisbee.

“With monetary policy not as effective as it has been historically, we should expect to see a greater focus by government on other ways to boost economic growth including tax cuts and government spending.”

AMP Capital chief economist Shane Oliver said: “While September quarter inflation was low and economic data has generally remained soft, recent RBA commentary highlighting a gentle upturn in growth and greater tolerance for low inflation suggests a lack of urgency to ease for now.”

ANU RBA Shadow Board member Timo Henckel argued rates should be kept on hold as inflation had crept closer to the RBA’s target.

“Coupled with a dip in the unemployment rate, which sat at 5.2 per cent in September, and low real wage growth of only 0.7 per cent, this makes a compelling case for leaving interest rates unchanged,” he said.

Australian GDP growth is at just 1.4 per cent for the 2018-19 financial year, which is weaker than growth during the GFC.

Last month, the RBA decided to cut rates for the third time this year to help boost the economy.

“Members judged that lower interest rates would help reduce spare capacity in the economy by supporting employment and income growth and providing greater confidence that inflation would be consistent with the medium-term target,” stated the RBA Board in its October monetary policy meeting minutes.

“Members also noted the trend to lower interest rates globally and the effect this was having on the Australian economy and inflation outcomes.

“Members judged it reasonable to expect that an extended period of low interest rates would be required in Australia to reach full employment and achieve the inflation target.”

The RBA board also flagged it was “prepared to ease monetary policy further if needed to support sustainable growth in the economy, full employment and the achievement of the inflation target over time”.

When will they cut next?

While a rate cut isn’t forecast for tomorrow, or for the rest of 2019, two thirds (64 per cent) of experts surveyed by Finder are predicting that the RBA will cut again in February 2019, which would bring the cash rate to 0.50 per cent.

“We think the RBA will next cut in February 2020 with some risk they will move sooner (in December 2019),” said St George Bank chief economist Besa Desa.

Smarter Property Investing’s Christine Williams added: “I believe the RBA will sit for a couple of months to see what effect the last reduction has had on the economy. I feel the next reduction will be February 2020.”

Yahoo Finance contributing editor Dave Taylor said there was “no way” the RBA was through with rate cuts.

Finder insights manager Graham Cooke said the RBA had copped criticism for “firing blanks with these cuts and running out of bullets in the process”.

“If true, it’s hard to believe that flogging the same horse will produce a different result,” he said.

“The RBA has not spoken fondly about negative interest rates in other countries, so I’d expect extra cash to be printed before we see a zero or sub-zero cash rate.”

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