Reserve Bank unlikely to raise rates

A range of soft business indicators and another month of benign inflation are not expected to reduce the big odds of an interest rate cut by the Reserve Bank at its last meeting of the year.

A range of soft business indicators and another month of benign inflation are not expected to reduce the big odds of an interest rate cut by the Reserve Bank at its last meeting of the year.

The RBA, which has kept the cash rate at a record low of 2.5 per cent since August, is expected to sit on the sidelines again while pushing for a lower exchange rate to support the economy's transition away from mining-led growth.

The economic and business data released on Monday were mixed.

Analysts said company profits, wages and salaries, and inventories figures could point to a soft third-quarter GDP number on Wednesday. Yet forward-looking indicators, such as housing construction, struck a more positive note for 2014, with new home building approvals easing slightly but not as much as expected.

New residential building approvals fell by 1.8 per cent in October, with the year to October recording a 23.1 per cent lift.

The resilience in the construction data lifted the Australian dollar, which rose about a fifth of a cent to US91.36¢. The local currency received a further boost after factory activity in China - Australia's largest trading partner - remained strong in November. The dollar was buying US91.58¢ late on Monday.

Economists said the Reserve Bank would retain an easing bias on Tuesday as it balanced a desire for a weaker Australian dollar with the risks of overheating the housing market. Financial markets priced in a 6 per cent chance of a rate cut.

"Housing is strengthening to near boom-like conditions — with approvals holding a 200,000 pace, prices up 8 per cent year-on-year and record auctions," UBS economist George Tharenou said.

Data released on Monday showed national house prices growth slowed to 0.1 per cent in November, but prices were still 8.3 per cent higher for this year.

"This is consistent with the RBA holding rates ahead, even if Q3 GDP was a bit softer," Mr Tharenou said.

At the same time, analysts said while the Australian dollar lost about 3.7 per cent of its value in November since the central bank stepped up its talk on the need for a lower exchange rate, it was likely to keep calling for a weaker currency.

"They've had a good month jawboning," NAB currency strategist Ray Attrill said. "The offshore investors we've spoken to have said that you've got to keep on drumming the message home — that you think the currency should be lower, and that you would like the currency lower."

On Wednesday, economists expect third-quarter GDP growth to remain at a below-trend pace. Third-quarter GDP is forecast to hit 0.7 per cent, while year-on-year growth is expected to reach 2.5 per cent.

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