SYDNEY, Nov 6 AAP - It's very probable Australian interest rates
could be on hold for quite some time after the Reserve Bank of
Australia chose not to alter interest rates today.
Westpac Banking Group maintained its view that rates will be on
hold for a while, and may not change until the third quarter of
2003, either to be raised or lowered.
However, it is not discounting the potential for an earlier rate
cut if certain factors deteriorate significantly beyond
expectations.
The Reserve Bank did not change the cash rate of 4.75 per cent
today, after yesterday's board meeting, for the fifth month in a
row.
The central bank in its August quarterly statement on monetary
policy had signalled it was still considering moving rates to more
"neutral" levels, judged by the market to be around 5.5 per cent.
"We have been saying no more rate rises until the second half of
next year," Westpac Bank senior economist James Shugg said.
"The reason is international environment remains uncertain, the
added worry of the drought and the leading indicators for the
housing sector look like they may be turning ... if we see in 2003
housing activity tapering off that would be one less reason to
worry about the domestic economy overheating."
He said, also, consumer sentiment had been trending down for six
months.
"You get a picture of an economy that is probably going to be
underperforming relative to trend over the next year ... by leaving
rates at this level they are accepting it is appropriate to keep
stimulating the economy through interest rates."
He said next Monday's quarterly statement from the RBA would
probably reflect a key change in its tone.
"We would expect to see some softening in their stance."
Mr Shugg added that if Australia's housing downturn worsened
beyond expectations and the US economy remained very weak these
could combine to bring a rate cut over the next year.
"But I stress that at this stage it is not our thinking ... it
is plausible and you have to attach a weighting to it."
He said such conditions for a rate cut, if they happen, could be
manifesting by the end of the first quarter next year.
RBC Capital Markets senior economist Su-lin Ong said it was
conceivable Australia could be in for a long period of no rate
changes.
"It looks like we are in for a prolonged period of continued low
rates," she said.
"We don't think the Reserve Bank is going to tighten, we think
they're going to be on hold probably for the next six months,
possibly the whole of 2003."
AAP
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