Rates to remain steady?

  1. 470 Posts.
    SYDNEY, Nov 6 AAP - It's very probable Australian interest rates
    could be on hold for quite some time after the Reserve Bank of
    Australia chose not to alter interest rates today.
    Westpac Banking Group maintained its view that rates will be on
    hold for a while, and may not change until the third quarter of
    2003, either to be raised or lowered.
    However, it is not discounting the potential for an earlier rate
    cut if certain factors deteriorate significantly beyond
    expectations.
    The Reserve Bank did not change the cash rate of 4.75 per cent
    today, after yesterday's board meeting, for the fifth month in a
    row.
    The central bank in its August quarterly statement on monetary
    policy had signalled it was still considering moving rates to more
    "neutral" levels, judged by the market to be around 5.5 per cent.
    "We have been saying no more rate rises until the second half of
    next year," Westpac Bank senior economist James Shugg said.
    "The reason is international environment remains uncertain, the
    added worry of the drought and the leading indicators for the
    housing sector look like they may be turning ... if we see in 2003
    housing activity tapering off that would be one less reason to
    worry about the domestic economy overheating."
    He said, also, consumer sentiment had been trending down for six
    months.
    "You get a picture of an economy that is probably going to be
    underperforming relative to trend over the next year ... by leaving
    rates at this level they are accepting it is appropriate to keep
    stimulating the economy through interest rates."
    He said next Monday's quarterly statement from the RBA would
    probably reflect a key change in its tone.
    "We would expect to see some softening in their stance."
    Mr Shugg added that if Australia's housing downturn worsened
    beyond expectations and the US economy remained very weak these
    could combine to bring a rate cut over the next year.
    "But I stress that at this stage it is not our thinking ... it
    is plausible and you have to attach a weighting to it."
    He said such conditions for a rate cut, if they happen, could be
    manifesting by the end of the first quarter next year.
    RBC Capital Markets senior economist Su-lin Ong said it was
    conceivable Australia could be in for a long period of no rate
    changes.
    "It looks like we are in for a prolonged period of continued low
    rates," she said.
    "We don't think the Reserve Bank is going to tighten, we think
    they're going to be on hold probably for the next six months,
    possibly the whole of 2003."
    AAP
 
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