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Australian interest rate forecasts: RBA likely to remain on hold while it assesses impact of previous cuts on the economy say ANZ

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Category: The Australian Economy

Published on Friday, 29 June 2012 13:18

Written by Rob Samson

What are the chances of the Reserve Bank of Australia cutting interest rates any time soon?

Not likely argue ANZ.

In a note to clients today, the ANZ research team forecast interest rates are likely to remain on hold for a while yet:



"After cutting the cash rate by 125bps since November 2011, the RBA is likely to remain on hold for at least the near term. Our long-held view has been against a rate cut in July and in our opinion the chance of a further cut in August is now 50-50 at best, barring very negative developments in Europe.

"The RBA eased rates a further 25bps at its June Board meeting in a ‘finely-balanced’ decision that was largely driven by adverse developments in Europe.

"The RBA is now likely to sit on the sidelines and wait and see what effect recent policy easing has on the economy before deciding whether stimulus is necessary."

Analysts advise that they will continue to closely watch Australia’s labour market data for signs of deterioration, with the ANZ job advertisements release on 9th July the first key release for June.

The ABS measure of job vacancies released this week showed that job openings declined by around 5% over the three months to May.

Turning to the markets, we see investors have reacted positively to the Euro Area Summit statement released earlier today.

Euro area countries proposed that a single supervisory mechanism be established, involving the ECB, and that the bailout funds could recapitalise banks directly if ratified.

Financial assistance provided to Spain’s banking sector will also not gain preferred creditor status when it is transferred to the new bailout fund (the ESM).