RBA leaving the official cash interest rate on hold becomes the popular pick

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Most commentators believe the Reserve Bank will leave the official cash rate untouched at today’s meeting.

While some economic commentators have been predicting for months that the official cash rate will be below 2% by the time the Melbourne Cup is run and won, those making more recent predictions are leaning towards the current status quo remaining.

Chris Johnson, director of MMJ Real Estate Sydney, said that while the likelihood of a rate cut has increased in recent weeks, he still believes the RBA won’t make a move.

“Two weeks ago I was far more confident, but after the most recent inflation figures I’d say the chance of a cut has gone from 25% to 50/50 bet,” Johnson said.

“But in saying that, I believe there won’t be a cut at the November meeting,” he said.

Johnson said there were a number of factors that influenced his decision, including the recent action of the major Australian lenders, who have all independently raised their home loan interest rates.

“With the current rate at 2% it doesn’t really give them a lot of room to play with. If the RBA was to cut the cash rate it might have some impact, but I don’t think it would be too much,” he said.

“I think everybody was a bit taken aback by the banks going out and raising their rates on their own last week, so I’m not sure the RBA would want to waste a cut of 0.25% if they’re not sure how much, or if any of that would be passed on.”

Johnson isn’t alone in his prediction, with 80% of respondents to the most recent monthly RBA survey from Finder predicting the cash rate will stay at 2%.

Peter Boehm, from onthehouse.com.au, is one of those who believe rates will stay on hold as the RBA is unlikely to do anything that could reverse the current direction of real estate markets in Sydney and Melbourne.

“The last thing the RBA would want is to fuel further house price increases through rate cuts, especially as prices in Melbourne and particularly Sydney are beginning to plateau,” Boehm said

“Assuming rates don’t move in November then I think it’s unlikely we’ll see any movements until 2016. The effectiveness of further interest rate cuts at this time is questionable,” he said.

CommSec economist Savanth Sebastian is one of those who believes the RBA will lower the cash rate, predicting that the central bank will want to undo some of the tightening caused by the major banks’ out-of-cycle rate rise.

“Banks raising rates outside of RBA policy is a quasi-tightening on the economy,” Sebastian said.

“Activity levels have been improving but still patchy. A rate cut before Christmas will help to spur activity."

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  • Watch out says on 03/11/2015 12:06:23 PM

    nothing screems louder than this article: "Australians have nothing but interest rates to back this speculative real estate 'boom".
    Which mean, a house of cards awaits a strong wind!

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