RBA Reserve Bank Interest Rate Decision for October 2014?
RBA Reserve Bank Interest Rate Decision for October 2014?; Reserve Bank of Australia on track to break its record for longest spell of cash rate inertia
The Reserve Bank of Australia is on track to break its record for the longest spell of cash rate inertia, with most major economists forecasting the central bank will sit on its hands well into 2015.
RBA governor Glenn Stevens said in the statement accompanying Tuesday's rate decision that "the most prudent course is likely to be a period of stability in interest rates," despite the Australian dollar being stuck in the tight trading range between US92¢ and US93¢. The statement had sparked market speculation about when the "period of stability" will end.
Economists agree that the next move by the central bank will be a tightening of monetary policy. But they have produced wildly varying forecasts for the timing of that move from as early as February 2015 (Commonwealth Bank of Australia) to as late as the first quarter of 2016 (Bank of America Merrill Lynch).
At the monthly board meeting on Tuesday, the central bank kept the cash rate on hold at 2.5 per cent for the 12th consecutive meeting, marking the longest period of steady rates since 2006.
The longest the Reserve Bank has kept interest rates on hold was more than 18 years ago, when the central bank kept the rates at 7.5 per cent for 17 consecutive meetings between February 1995 and July 1996. If the central bank were to match that record, that would imply no change to current settings until April next year, matching most analyst forecasts.
Economists' snap shot: When will the "period of stability" end?
CBA: First hike will be in February.
TD Securities: Expect a rise in March.
Barclays: RBA will start "to raise rates in Q1 2015 as the economy improves and with the cash rate at 3.5 per cent by the end of that year".
HSBC: hike in June quarter of 2015, "though much depends on the [Aussie dollar] outlook".
ANZ: Tightening cycle begins in May 2015.
JP Morgan: "First step along the road to policy normalisation in August next year".
Westpac: "Our official forecast is for a 25 basispoint increase in the cash rate at the board meeting in August next year."
RBC Capital Markets: "Given a number of cyclical as well as structural challenges, we remain comfortable with our view for an extended period of steady cash at 2.5 per cent until [the fourth quarter] 2015".
NAB: The bank "still expects the next move in the cash rate will be up, but not until late 2015".
BoA: "Our forecast remains for policy to be tightened in [the first quarter of] 2016"
Newjerk? can you try harder than dig up another person's blog. My first promo was with Billabong and my name in English is modified with a T, am Perth born but also lived in Sydney to make my $$ It's Absolutely Fabulous if it includes brilliant locations, & high calibre tenants..what more does one want? Understand the power of the two "P"" or be financially challenged Even better when there is family who are property mad and one is born in some entitlements.....Understand that beautiful women are the exhibitionists we crave attention, whilst hot blooded men are the voyeurs ... A stunning woman can command and takes pleasure in being noticed. Seems not too many understand what it means to hold and own props and get threatened by those who do. Banks are considered to be law abiding and & rather boring places yeah not true . A bank balance sheet will show capital is dwarfed by their liabilities this means when a portions of loans is falling its problems for the bank.
No brainer with poor old Glen warning about the bubble. After vacillating this long with nothing materialising to save his arse, he knows it has to go down to drop the oi oi oi $, but also knows the morons will go for broke pushing up house prices.
"Government must do something" he squeals.
WHAT WOULD EDDIE DO? MAAAATE! Share a cot with Milton?
The Australian is gradually regaining the losses made after the US unemployment rate hit a six-year low of 5.9 per cent.
At 0700 AEDT on Tuesday, the local unit was trading at 87.57 US cents, up from 87.05 cents on Monday.
Early on Saturday morning, Australian time, it dropped to a four-year low of 86.43 US cents, after the release of better-than-expected US employment data.
ThinkForex senior markets analyst Matt Simpson said the focus would now be on the outcome of the Reserve Bank of Australia's board meeting on Tuesday afternoon.
While the RBA is expected to keep the cash rate unchanged for the foreseeable future, all eyes will be on whether governor Glenn Stevens makes any comment on the lower Australian dollar.
The currency has dropped as much as eight US cents since late July.
"Having previously removed `high by historical standards' and replacing it with `remains above most estimates of its fundamental value' we can already see a more relaxed RBA even before the currency's drop," Mr Simpson said.
"If we see no reference at all to the exchange rate, then this would suggests current levels are what the RBA deem to be acceptable."
Mr Simpson said that if there RBA does not express a desire to keep the cash rate stable, then the Australian dollar is likely to rise further.
By almost all accounts the Reserve Bank is set to keep interest rates on hold this Tuesday.
But what if they didn't? What if they decided, in a monumental lapse of judgment, to raise rates by a full percentage point?
"I think the board would be sacked," NAB's Alan Oster told Domain.
"The currency would go through the roof. All the futures market would basically say 'if they've done one they're not going to stop' and I suspect bank shares would get hammered.
"It's an 'oh shit' experience for the economy."
Given the current official interest rate is just 2.5 per cent, any variable-rate mortgage holders would get a nasty shock.
"Within a month you'll be paying 20 per cent more on interest bills. It would be a big blow to mortgagees' hip pockets," AMP Capital's Shane Oliver said.
About 80 per cent of mortgages in Australia are variable rate and the smug few on fixed rates would still suffer, just a bit later.
And you could say goodbye to the recent clearance rate boonm. Melbourne only just dipped below 77 per cent after five consecutive weeks above that. A full 1 percentage point increase in the interest rate could slash that clearance rate by 20 percentage points, Mr Oliver speculated.
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