RBA Expected to Hold Cash Rate Despite Strong Data

Economists said Tuesday that despite the stronger-than-expected international trade and building approvals figures for August, the Reserve Bank of Australia is unlikely to change the current cash rate.

According to the Australian Bureau of Statistics, home building approvals went up 11.4 per cent to 13,800 units for August, up from the seasonally adjusted 12,384 units in July. It was the second consecutive month that home building approvals grew, and the figure was 0.6 per cent higher than economists' forecast.

TD Securities economist Roland Randall said the official figures confirm the rising number of anecdotes that housing activities in the home building and auction markets have been going up the past few months.

JPMorgan economist Helen Kevans said building approvals were driven not by private-sector houses, which actually declined 1 per cent, but by approval for other dwellings, which jumped 35 per cent.

The ABS also said Australia's international trade surplus grew to $3.1 billion, much higher than the economists' forecast of $1.95 billion.

The surplus was achieved because exports in August went up 8 per cent, while imports increased by only 3 per cent. The bulk of the exports were from mining.

Despite these two positive reports, the economists believe the RBA will likely focus on events overseas, particularly the financial and funding markets, rather than on local data.

"We think the RBA will be reiterating its wait-and-see approach and we don't think they will move rates anytime this year or for next year. We have the RBA on hold throughout 2012," Kevans told The Sydney Morning Herald.

Bloomberg survey of economists agreed with Kevans' forecast that RBA Governor Glenn Stevens will hold on to the 4.75 per cent key lending rate for the 11^th straight month. Australia's borrowing cost is among the highest in developed economies compared to near-zero benchmark rates in the U.S., Britain and Canada, as the RBA's way of containing inflation during the greatest mining boom in more than a century.

"There's very little chance of a rate cut, unless we see that deterioration sharpen in the data and numbers like the building approval figures speak directly against that argument," CMC Markets chief market strategist Michael McCarthy told the Herald.