The Reserve Bank of Australia (RBA) hasn’t moved interest rates in each of its past 18 meetings.
Nor has it lifted the cash rate since late 2010.
Shane Oliver, Head of Investment Strategy and Chief Economist at AMP Capital, thinks it will be a while yet before either of those trends change.
He’s not expecting the RBA to lift rates until 2020 at the earliest.
“We had been expecting the RBA to start raising rates in early 2019 but with the further tightening in bank lending standards effectively doing the RBA’s work for it and growth likely to remain below 3% and inflation around 2% for longer we now don’t see an RBA tightening until sometime in 2020,” he says.
According to forecasts offered to Bloomberg, a slim majority of economists expect that the cash rate will remain at 1.5% by the end of 2018. Just one forecaster, Market Economics, expects the cash rate will be lower with everyone else either looking for it to remain unchanged or higher.
Financial markets aren’t fully priced for a full 25 basis point rate increase to be delivered until the middle of next year.
Given his expectation the RBA will sit on the sidelines for close to two years, at least, Oliver says this should act to weaken the Australian dollar over the same period.
“With the Fed likely to continue hiking this only adds to confidence in our view that the AUD/USD will fall towards 70 cents,” he says. “And on this front it’s noteworthy that it appears to be breaking below the rising trend line that’s been in place since 2015.”
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