Interest Rates to hold

While I have been in the camp of predicting the RBA will move to lower rates before Xmas, in reading their minutes from the August board meeting, I actually think unless the world totally goes to cactus they will simply hold cash rates at 4.75%.

The RBA appears unmoved in its fight against structural inflation pressures. This is despite around 4000 jobs cuts being announced by listed Australian companies alone yesterday. They are an inflation targeting bank and inflation continues to be above their target range. If you read the minutes, the wording actually suggests they only stopped lifting cash rates in August because of global markets dislocation. These guys are very stubborn and they are showing no signs at all of changing their stance.
I think the mistake I have been making is believing what domestic yield curves are telling me about the RBA’s intention. The drive lower in Australian yields is more above a wave of offshore money buying a AAA rated home “at any yield higher than the OECD”, rather than a true view of where Australian cash rates are heading. The good news is these lower yield curves are allowing the BIG  four banks to lower fixed rate mortgages, in effect doing some work for the RBA, but to think the RBA are on the cusp of lowering cash rates I now think is misplaced.



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