RBA expected to keep rates on hold as global markets remain volatile

The chance of the Reserve Bank cutting interest rates today has all but disappeared due to volatility in global markets and the likelihood of debt and economic troubles continuing in both Europe and the United States, economists have warned ahead of today’s Reserve Bank meeting.

If the official interest rate is to be kept steady at 4.75% this afternoon, as is expected, it will be 10 months since the RBA last adjusted rates.

The prediction comes after a month of disappointing economic data, with consumer confidence at a two-year low, a shrinking manufacturing industry, and retail sales that continue to remain flat.
Unemployment also rose to 5.1%, while yesterday’s job ads data showed a decrease in the number of ads being published.

Building approvals have also fallen, while the construction industry continues to suffer under lower levels of activity.

CommSec economist Savanth Sebastian says the bank has pushed back its forecast for any movement on interest rates to February next year, (it previously pencilled in November for a rate hike), and says if global volatility continues, the RBA may even announce a rate cut.

“There has been a bit more volatility especially under the European and American regions, and that will be front and centre in the Reserve Banks’ mind today. I think it’s clear the European debt crisis is gaining traction, and data out of the US shows they’re not getting out of this mid cycle slump.”

“If we see conditions on the global rate continuing to decline, you may have to look at the potential for an interest rate cut.”

A survey of economists conducted by Bloomberg has showed all believe the RBA will keep rates on hold this afternoon. Many have pointed to stronger profit growth, along with wages and salaries growth, and higher automobile sales.

“This is going to be based on global concerns rather than domestic,” Sebastian says. “It will be based on the way this data feeds through to the domestic economy.”

“Consumer sentiment is at a two year low, and that suggests the economy is losing pace. If this trend continues, you can’t rule out rate cuts.”

SmartCompany will report on the Reserve Bank’s decision this afternoon at 2.30pm.