Rate Cut Seen As Good Bet by RBA
RBA believes that the inflation outlook is “less concerning than was the case a few months ago”. This was reflected in the minutes in its October meeting yesterday.
On October 26, the result of the third quarter inflation will be delivered. This is a week before the RBA will hold its Melbourne Cup Day board meeting. Should the underlying inflation rise by less than 0.7 per cent in the quarter, economists expect that the RBA could cut the 7.45 per cent official cash rate.
China was shown to have slowed down for the second consecutive quarter leading to fears seeping in the financial market. According to the record, China recorded a growth rate in the third quarter of only 9.1 per cent compared to the 9.5 per cent from the second quarter and 9.7 per cent in the quarter before that.
There is a prediction from the interbank futures market that Australia will have a rate cut of 70 per cent next month. If it happens, this would be the first since the global financial crisis. The cash rate, on the other hand, will be up to 111 points lower next year at around the same time.
“Members noted that an improved inflation outlook, if confirmed by further data, would increase the scope for monetary policy to provide some support to demand should that prove necessary. Members noted that financial conditions had already eased somewhat with interest rates for some housing and business loans declining slightly because of increased competition and a fall in funding costs in financial markets,” according to the RBA.
It is possible for most-developed countries aside from the US to cut rates in order to offset financial market volatility. This is according to Ian Macfarlane, former RBA Governor.
“The Fed though has almost no room to move, I don’t think quantitative easing is a good or bad thing, I don’t think it has any fundamental effects,” he said.
“Our view is that there is room for the RBA to reduce rates to a more neutral setting. Despite positive headline employment data last week, trend employment growth has slowed to zero,” said ANZ Senior Economist Craig Michaels.
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Source : THEAUSTRALIAN.COM.AU
