RBA to reveal interest rate call, economic forecasts

Mortgage holders are unlikely to get a helping hand this week as resurgent inflation is expected to discourage the Federal Reserve from cutting interest rates for the foreseeable future.

The contradictions of rising consumer prices and high unemployment are pulling the RBA monetary policy board in opposite directions, leaving the bank to sit on its own and wait for more data, according to analysts at Japanese investment giant Nomura.

Andrew Ticehurst and David Seif said that since the last interest rate meeting in September, the key developments were a sharp rise in unemployment in September and a much stronger than expected inflation figure last week.

“The RBA has a dual mandate and while these data pull it in different directions from a policy perspective, the best option is probably ‘do nothing’,” they said in a research note.

Basing rate decisions on historical data was like “driving by looking in the rearview mirror” and increased the risk of policy errors.

“But equally we are not sure there is a better approach,” Mr. Ticehurst and Mr. Seif said.

“And with the economy now growing at a near-trend rate, the policy rate likely to be close to the indefinite neutral rate, and policy changes occurring only in small increments, we hope the cost of any resulting errors will not be large.”

There is consensus that the Central Bank will keep interest rates steady on Tuesday.

Expectations for future moves will be influenced by the tone of the board’s statement, Gov. Michele Bullock’s post-meeting conference, and updated economic forecasts released simultaneously.

NAB senior economist Taylor Nugent expects the board to emphasize the need to hold off for a while longer to gain greater confidence about the path of inflation going forward.

“As we gather more information on labor market and inflation dynamics, we expect the RBA to remain cautious during an extended pause and provide little guidance on the path ahead,” he said.

The Commonwealth Bank now thinks the central bank has ended its easing cycle, while Westpac expects two more cuts next year, albeit later than previously anticipated.

“Monetary policy is still a bit restrictive,” said Westpac chief economist Luci Ellis, the RBA’s former chief economist.

“Therefore, further cuts in the cash rate next year are warranted, given that headline inflation will remain within the band and decline in the coming quarters.”

The Australian Bureau of Statistics will also release data on consumer spending, construction approvals and trade this week.

ANZ economists expect household spending to rebound in September after growth slowed in the previous two months, with Monday’s figures expected to show growth of 0.4 per cent.

ANZ’s Madeline Dunk said the ABS was also expected to report on Monday that building approvals rose four per cent in the month.

“Private residential older homes (units/townhouses) have fallen 32 percent in the last two months, so we expect a rebound in September.”

On the other hand, Cotality’s home value index on Monday should show further growth in property values ​​across the country.

Meanwhile, Wall Street investors appear concerned that the Federal Reserve is becoming more cautious about lowering U.S. interest rates.

Major New York indexes closed higher on Friday thanks to optimistic earnings forecasts for Amazon, but confidence has weakened.

Dow Jones Industrial Average increased by 40.75 points (0.09 percent) to 47,562.87 points, S&P 500 index increased by 17.86 points (0.26 percent) to 6,840.20 points and Nasdaq Composite increased by 143.81 points (0.61 percent) to 23,724.96 points.

Australian share futures fell five points, or 0.05 per cent, to 9,913.

The S&PASX200 fell 3.6 points, or 0.04 percent, to 8,881.9 points on Friday, while the All Ordinaries index lost 0.9 points, or 0.01 percent, to 9,178.

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