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October rate cut unlikely

Staff Reporter 2 minute read

Recent catastrophic events in the US financial sector and global economic uncertainty are unlikely to prompt the RBA to cut the official cash rate in October.

Fariborz Moshirian, professor of finance at UNSW’s Australian School of Business, told Mortgage Business that recent international events, such as the collapse of Lehman Brothers, were unlikely to impact Australia’s economy significantly.

“The market has fallen this week but generally speaking it should be able to weather this round of write-offs,” he said.

Mr Moshirian said domestic economic data would hold chief importance at next month’s RBA meeting, unless international conditions really took a turn for the worse.

Surprisingly strong unemployment data released last week would more than likely see the RBA hold off on any rate cuts in October, he said.

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Unemployment fell to 4.1 per cent in July, in contrast to predictions that it would rise to 4.4 per cent.

“These unemployment figures would have taken the RBA by surprise, considering they have forecast for unemployment to reach 5 to 5.5 per cent next year,” Mr Moshirian said.

Minutes from the RBA’s September 2 meeting, released yesterday, also showed that inflation continues to be a high concern for the central bank.

While the bank decided to ease rates at the meeting it noted that monetary policy “would need to be on the restrictive side of normal for some time ahead” in order to manage inflation.

Taking this into account, Mr Moshirian said this left even greater reason for the RBA to hold off on reducing the cash rate next month.

“The RBA is much more likely to move on rates in November, once it has seen the next round of inflation figures,” he said.

Published: 17-08-09

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