RBA cash rate unlikely to budge


The Reserve Bank has left official interest rates on hold at the record low of 1.5 per cent.

The currency lost 0.06 percent to 0.7872 against its American counterpart, after recording its lowest since January 11 of 0.7861 earlier in the day.

But economists feel that the slippage is not enough to warrant a move to higher interest rates. That followed a very sedate 0.1 percent gain the previous quarter. The Pound-to-Australian-Dollar rate was quoted 0.19% higher at 1.7729.

The kiwi climbed 0.5 percent to 0.7308 against the greenback, moving further away from its 2-1/2-week decline of 0.7261, as the dollar took a short break after hitting almost a 2-week high due to a positive United States jobs report.

Given those not-so-lofty expectations, it means all interest will fall on the accompanying monetary policy statement, particularly what the bank has to say about the Australian dollar, along with the outlook for inflation, wage pressures and the broader Australian economy.

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However, Europe appeared to have avoided the worst of the share falls seen on Monday in the USA and earlier on Tuesday in Asia. The big drop comes on the heels of the worst week in the market in more than two years and Friday's major sell-off.

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The bank showed no need to follow the US Federal Reserve, the Bank of England (BOE), and the European Central Bank's (ECB) move of adjusting monetary policies.

"A gradual pick-up in inflation is, however, expected as the economy strengthens".

Over the year, core inflation rose 1.9 percent to remain under the RBA's target band of 2-3 percent.

Although debt levels remain high with income growth slowly increasing, Lowe said that business conditions remain positive along with the outlook for non-mining business investment.

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That is 18 cents more expensive since prices started the upward trend in late-December and 3 cents more than last Monday. And the damage could get even worse as refinery maintenance season and summer gasoline is on the horizon.

Andrew Goodwin, lead United Kingdom economist at Oxford Economics believes that inflation is set to drop slower than the MPC predicts and evidence that the housing market is sensitive to rate hikes will mean the Bank moves slowly.

Higher wages in the coming quarters could give the bank reason to implement its first interest rate hike in the September quarter since 2010.

Inflation: Retail inflation, as measured by the Consumer Price Index (CPI), has already breached 4%, the RBI's medium-term target, for two consecutive months.

"Economic growth is reasonable, so a rate cut is not warranted". Recent price action in the Treasury markets, however, suggests that investors believe the Fed is considering a fourth rate hike.

However, the team warn that a more "hawkish RBA" is a risk to their trade thesis because if the Reserve Bank uses Tuesday's statement to hint that it could soon lift the cash rate from its current record low, then it would be akin to giving the AUD/USD a shot of adrenaline in the arm.

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Many economists expect a further rise in November.