RBA board holds cash rate steady

As widely predicted, the RBA has decided to keep the cash rate on hold at 1.5 per cent on Melbourne Cup day.

The ASX futures market has been pricing in a zero per cent chance of a change in the cash rate for most of October.

RBA governor Philip Lowe has warned borrowers that interest rates need to rise, but with September quarter inflation data coming in below market expectations (1.8 per cent) the central bank is unlikely to hike soon.

Consumer price inflation is currently below the RBA's target band of 2-3 per cent.

The ANU CAMA Shadow Board November meeting attached a 60 per cent probability to 1.5 per cent being the correct monetary policy setting.

Six months out, the Shadow Board estimates there is a 75 per cent probability that a 1.5 per cent cash rate will be too low.

"The expansion of the global economy is gathering pace. Global share markets continue on their bull run, raising growing concerns that share and bond prices are trading well above their fundamental values and that a major correction is due. More and more central banks are expected to lift rates, or already have," said the Shadow Board's report.

A year out, the Shadow Board members’ confidence that the cash rate should be held steady equals 16 per cent (15 per cent in October), while the confidence in a required cash rate decrease equals 7 per cent (8 per cent in September), and in a required cash rate increase 78 per cent (unchanged).