An ibis bird perches next to the Reserve Bank of Australia headquarters in central Sydney, Australia February 6, 2018. REUTERS
BENGALURU, Sept 20 (Reuters) – Australia’s central bank will keep its key policy interest rate unchanged on Tuesday and for the rest of the year amid elevated price pressures, according to economists polled by Reuters, with most expecting the first reduction early next year.
Inflation slowed to 3.5% in July but was still above the Reserve Bank of Australia’s 2%-3% target range. Along with a strong job market, that leaves little to no room for policymakers to cut rates next week.
The RBA is set to lag well behind other major central banks that have already begun cutting, including the Reserve Bank of New Zealand, Bank of England, Bank of Canada, and the U.S. Federal Reserve, which cut by 50 basis points on Wednesday.
All 45 economists surveyed Sept. 12-19 expected the RBA to keep its official cash rate on hold at 4.35% at the conclusion of its two-day meeting on Tuesday.
A strong majority, 40 of 44, predicted rates would remain unchanged through end-year, while interest rate futures were pricing in a slightly greater than 50% probability of a rate cut by then.
“There is no possibility of the RBA easing at this meeting,” said Robert Carnell, regional head of research, Asia-Pacific, at ING.
“The risk is slightly to the upside: the RBA never really tightened rates that much to bring the economy slow enough to get inflation under control, and I think that’s a question that has yet to be answered,” he said.
The S&P 500 closed at a record high on Thursday as Wall Street rallied one day after the Federal Reserve cut interest rates by an upsized 50 basis points.
Among major local banks, ANZ, NAB, and Westpac predict rates will stay unchanged this year, while CBA expects one cut before year-end.
Major domestic banks contacted after the Fed’s rate decision on Wednesday did not change their views.
“We don’t think the Fed’s decision to ease by 50bps will directly influence the RBA’s decision,” said Catherine Birch, senior economist at ANZ.
“We expect it (the RBA) will retain much of the hawkish language of the August meeting.”
The RBA was expected to start its easing cycle next year with 25 basis point cuts in Q1, Q2, and Q3, followed by a pause, bringing the cash rate to 3.60% in the last quarter of 2025.
(Other stories from the Reuters global economic poll)
Reporting by Veronica Dudei Maia Khongwir; Polling by Susobhan Sarkar and Anant Chandak; Editing by Hari Kishan, Ross Finley and Christina Fincher
