Central Banks

RBA holds rates at record-low 2 percent but adds easing bias

RBA left door open to further easing: Moody's
RBA left door open to further easing: Moody's

The Reserve Bank of Australia held its key cash rate at 2 percent, saying that the prospects for an improvement in economic conditions had "firmed a little over recent months."

The central bank said that its board members had observed that the inflation outlook could afford scope for further easing should it be required to support demand. Economists read this as a move to an easing bias.

"The Board will continue to assess the outlook, and hence the whether the current stance of policy will most effectively foster sustainable growth and inflation consistent with the target," the RBA said in its post-monetary policy meeting statement. The RBA targets inflation of 2-3 percent over the economic cycle, with inflation for the September quarter coming in at 2.15 percent.

The RBA had been expected to keep rates on hold. A Reuters poll of 21 analysts found that 17 expected no cut at the November meeting, with the remainder calling for a cut. The central bank last cut rates in May, following a cut in February.

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The Australian dollar had been volatile ahead of the rates call but afterward was steady at $0.7170 after the announcement.

Debt markets seemed to suggest investors were not counting on the RBA cutting by year end. Interbank futures for December slid to imply around a 36 percent chance of an easing, from above 70 percent earlier in the day.

Annette Beacher, head of APAC research at TD Securities, said the RBA had signaled a clear easing bias.

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""They decided that the next move is likely to be down. From our perspective, we are leaving the cash rate on hold for December but that meeting is live, just like the [Federal Open Market Committee]. At this stage, we are not calling for a cut until I read the statement to see whether they are balanced or more dovish," she said.

There had been increased speculation of a November rate cut after Australia's big banks increased their mortgage rates in October. and the most recent quarterly inflation reading was tepid. But policymakers have been reluctant to cut for fear of adding fuel to Sydney's already overheated housing market.

Tuesday's rates decision likely received less attention than most, with the majority of Australians focused on the Melbourne Cup, which is known as "the race that stops a nation."

- Reuters contributed to this report.