Stephen Koukoulas - Interest Rates
Tuesday sees the monthly meeting of the RBA Board and there is close to zero chance that official interest rates will be adjusted from the current 1.5 per cent. This will mean official interest rates will have been left unchanged for close to a year.
The RBA has been remarkably upbeat about the domestic and global economic outlook. It reckons real GDP growth is poised to accelerate to above 3 per cent (currently 1.7 per cent) and that the unemployment rate is just 0.5 per cent or so from full employment, meaning that a lift in wages growth is imminent. Everyone is hoping the RBA is correct, but while it has this upbeat view of the economy and yet inflation remains well contained, it is close to certain that rates will be on hold.
As an aside, the market is evenly divided about the longer run outlook with a raft of good forecasters expecting the RBA to be wrong and as a result it will eventually have to cut interest rates, while a similarly strong part of the economics profession is of the view that rates hikes will eventually be needed. At the moment, the market is tilting towards hikes, but that is not for 18 months or so and even then, there is just one 25 basis point hike currently priced in.
Aren’t markets and forecasting fun?
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