The RBA’s decision is in line with the expectations of the market, with QIC chief economist Matthew Peter indicating that the central bank will now “sit and wait” for global and domestic developments.
“A February rate cut is still an option if global conditions deteriorate – especially if the Fed delays ‘lift off’,” Mr Peter said.
The ANU Centre for Applied Macroeconomic Analysis (CAMA) RBA Shadow Board ascribed a 67 per cent probability to 2 per cent being the “appropriate policy setting”.
“Headline inflation, at 1.5 per cent (year-on-year) below the RBA’s target band of 2-3 per cent, remains well contained and GDP growth, at 2 per cent annualised, soft,” said a statement by the Shadow Board.
“The CAMA RBA Shadow Board on balance prefers to keep the cash rate on hold, attaching a 67 per cent probability to this being the appropriate policy setting.
“The confidence attached to a required rate cut equals 22 per cent, down four percentage points from the previous month, while the confidence in a required rate hike has risen slightly to 11 per cent,” the statement said.
The RBA is right to hold back on more accommodative monetary policy so that it can have some ammunition for the economic and financial debacle ahead, as slip into a deflationary, low growth 2016, combined with further falls on equity markets. This has been coming for more than all of 2015, but too few commentators and advisers saw it and consequently many advised investors will be suffering – yet again. We’ve kept our clients below 30% exposure to risk assets over 2015 and it’s probably not too late to remove risks for those who didn’t previously see it coming, but who now can read the writing on the wall…