RBA cash rate target announcement – October 2015

Results from the finder.com.au Reserve Bank Survey found that 100% of the resident rate experts unanimously predicted that the rate would be held at 2.00% for October 2015. However, while experts were united in forecasting no movement for the cash rate at today’s Board meeting, they’re divided about future activity for the Australian dollar and how this may impact overseas transactions.

The majority of the expert panel expect the Australian Dollar to fall below $US0.65 and 58% of participants expect a cash rate rise as early as 2016.

Several experts said that the change in federal leadership has had a positive influence on the economic environment with the recent softening of the Australian dollar driving the export business.

Just two experts from the finder.com.au Reserve Bank Survey - Jonathan Chancellor from Property Observer and Shane Oliver from AMP Capital - expect the cash rate to fall in November this year, while the remaining 94% of respondents do not believe the cash rate will change again this year.

60% of respondents forecast a rate rise next year, while 40% expect a rise to occur beyond 2016. Of those experts who predict a cash rate rise in 2016, nearly half expect that this will occur in the fourth quarter of 2016.

Why hold the current cash rate?

While many believe the Reserve Bank is content with the current level of interest rates, the Bank may need to assess the direction of fiscal and monetary policy under new leadership.

With steady employment growth, improvement in the labour market and buoyant residential property markets, the Reserve Bank remains in its "wait and see" mode as the low cash rate harnesses economic activity.

Many of the resident rate experts noted that economic data remains neutral and that the Bank needs to hold rates to stimulate recovery in the non-mining sectors of the economy.

With accommodative domestic economic conditions, and low inflation contained 1.5%, an additional rate cut is not priority as the Bank needs to see how volatility in global markets- notably China- develop before initiating a move. The Reserve Bank cited that the economy continues to operate with "spare capacity" while low interest rates are supporting borrowing and spending.

Despite today's decision, the Reserve Bank is expected to start increasing its rate in the foreseeable future.

What’s next? Future currency and rate movements

With respect to future movements of the Australian dollar, 76% of experts predict that the Australian dollar will fall below US$0.65 this cycle.
14% of respondents predict the Australian dollar will reach its lowest value against the US currency by the end of this year. However, the majority (72%) expect this to occur in 2016; and 44% of experts believe this will happen in the first half of 2016.
Our money expert, Michelle Hutchison, says that the depreciating Australian dollar will impact international money transfers and overseas property investments, so Australians should keep tabs on the movement of both the local currency and interest rates.
“It’s daunting to think just last year, in July 2014, the Australian dollar was buying almost US$0.95 and we were trading at parity with the United States from June 2012 to May 2013. Fast forward to September 2015, and an overwhelming majority – 86%– of experts in our latest survey predict the Aussie dollar will fall to US$0.70 by the end of this calendar year, with over two in five believing it will plummet further – to US$0.65 – by year’s end. This can have a significant knock-on effect for Australians, especially those heading overseas this summer.
“International money transfers and overseas property investment are also likely to be adversely affected. Whether you’re sending money overseas, buying anything offshore, travelling abroad or have a home loan, keep track of both movements to the Aussie dollar and interest rates as next year is set to get tougher”, she says.