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RBA set to leave rates unchanged

Prashant Mehra  |  04 Sep 2017Text size  Decrease  Increase  |  

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SYDNEY - [AAP] The Reserve Bank of Australia is set to leave interest rates unchanged for a thirteenth straight month as it waits for the gradual easing of growth in the housing market to play out while hoping for economic growth to pick up.

All 13 economists surveyed by AAP expect the central bank to leave the cash rate steady at a record low of 1.5 per cent at its September board meeting on Tuesday.

Governor Philip Lowe last month said the RBA expects to keep the cash rate steady for a while as consumers adjust to an extended period of low wage growth that will cap inflation.

The central bank has also continued to maintain expectations for economic growth at an annual 3 per cent rate for the next few years but is worried a higher Australian dollar could impact that forecast.

Citi economist Paul Brennan says the RBA's views, which will come a day before June quarter GDP data is released, should be little changed.

"Since the last board meeting the major domestic economic data sets have evolved largely in-line with the RBA's forecasts," Mr Brennan said.

"Conditions in the global economy continue to improve slowly, while wage growth at home and abroad, along with core inflation, remains subdued."

The next move--likely to be higher--is widely expected to be by the middle of next year, with only one economist expecting RBA earlier in the first quarter of 2018.

JP Morgan analyst Sally Auld said the governor's commentary this week will likely also focus on developments in the housing market.

"Officials may be heartened by APRA data showing interest-only loans contracted in the second quarter," she said in a note.

"Still, the broader signals from the housing market data remain inconsistent and variable across the country."

The Australian Prudential Regulation Authority capped interest-only mortgage lending in end-March, forcing lenders to limit higher-risk interest-only loans to 30 per cent of new residential mortgages.

Economists are confident that the round of rate increases that followed APRA's move has put the housing market on track for a gradual easing.

The Reserve Bank will announce its interest rate decision at 1430 AEST on Tuesday.

 

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