As I expected, the RBA left rates on hold this week. Despite a lift in variable mortgage rates by the major banks, a firmer $A, and a lower than expected CPI result, the most important development over the past month has been
…tentative signs of improved business confidence – owing to what I’ll term the “Turnbull effect”.
Indeed, this effect has not gone unnoticed at the RBA, with the post-meeting statement noting
“business surveys suggest a gradual improvement in conditions over the past year” and
“the prospects for an improvement in economic conditions had firmed a little over recent months”
Whether the Turnbull effect lasts or not (though I personally doubt it will) there seems enough encouraging news to suggest a rate cut in December is unlikely, and a February move is at most a 50-50 chance.
Further out, a waning in the stimulus from the housing upturn, and the end of the Turnbull ‘honeymoon’, and further possible mortgage rate increases by the banks, should see economic conditions soften again, sufficient for the RBA to still cut rates to 1.5% by mid-2016.