The Reserve Bank is unlikely to budge from its neutral interest rate stance on Tuesday, but it may ramp up its easing bias a notch. All 14 economists surveyed by AAP expect the RBA to keep the cash rate unchanged at its February meeting, and eight expect it to remain on hold for the entire year.
The central bank cut its interest rate by a quarter of a percentage point last February and again in May, taking the cash rate to a new record low of two per cent. Markets are currently pricing in about a four per cent chance of a rate cut this week, although one is fully priced in by July.
The RBA faces a trade-off between its desire to boost growth, to keep inflation in check, and the risks that lower interest rates could pose to financial stability, HSBC chief economist Paul Bloxham said. ‘Australia’s labour market continues to show signs of improvement, which should keep the RBA on hold for now,’ he said. ‘However, inflation is low and forecast to stay subdued, leaving the RBA with scope to cut further.’