SYDNEY (Reuters) – Economist at Commonwealth Bank of Australia (CBA) CBA.AX expects the country’s central bank to hold interest rates at a record low 0.25% at its October 6 board meeting, in contrast to calls for cuts from its two main rivals.
Financial markets are expecting a 60% chance of a rate cut by the Reserve Bank of Australia (RBA) to 0.1% from 0.25% now. The yield on the three year government bond has fallen to 0.2%, implying a 33% chance that the target yield curve will also be lowered to 0.10% from 0.25%.
“So the meeting was clearly ‘live’,” wrote Gareth Aird, CBA Australia’s head of economics, adding the RBA will leave policy rates unchanged next month.
“We are confident the RBA will be well aware that the potential costs and risks (of easing) at this point outweigh the potential benefits.”
Aird said tinkering with cash values carries the risk of another important short-term interest rate falling into negative territory, which will obviously deter the RBA from here.
Earlier this week, Westpac Banking Corp. Economist Bill Evans revised the RBA’s interest rate call to predict a 15 basis point cut while the National Australia Bank said easing was likely next month or in November.
The change in attitude follows a speech by RBA Deputy Governor Guy Debelle on Tuesday in which he left the door open for further monetary easing.
Aird CBA said at this stage the increase in the level of government bond purchases was most likely the RBA’s next step in the area of monetary policy.
“We believe the RBA will not introduce new policy options until the current measures are expanded. That led us to conclude that the monetary policy in October was on hold, “he said.
Reporting by Swati Pandey; Edited by Christian Schmollinger