But for how much longer?
The Reserve bank board met on Tuesday 1 September and kept official interest rates on hold at 2%, continuing to assess the impact of the two rate cuts earlier in the year.
Lack of business investment No doubt the RBA board would have discussed at length current weak commodity prices impacting our national income, the lack of business investment as well as two key developments that arose earlier in August. These include the recent devaluation of the Chinese currency and the weak Australian unemployment report.
Unemployment rate Previous RBA commentary indicated it considered the unemployment rate profile was around 6%. However the other key development in August was that the unemployment rate jumped to 6.3%. A higher unemployment rate is also a catalyst for an inflation downgrade, due to weak wages growth.
Business conditions and confidence The NAB business confidence survey for August pared back the post Budget gains, however both conditions and confidence are suggesting a turnaround in the non-mining economy, with conditions varying greatly across industries. The confidence index is still positive and holding around average levels.
Macquarie Bank is of the view that the combination of the Chinese currency devaluation, a weakening labour market and excess capacity in the economy all support the case for a further rate cut in November. The next RBA board meeting will be held on Tuesday 6 October.
Rick Maggi Westmount Financial Clear Focus. Better Solutions.