No rate cut tomorrow

RBA unlikely to cut the official cash rate at its monthly board meeting

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published September 2, 2013 12:33 pm AEST

Mortgage borrowers will have to wait at least another month to see if the Reserve Bank (RBA) will cut the official cash rate. The Central bank is widely tipped to leave interest rates on hold at 2.5%, its lowest point since 1959.

Since November 2011, the RBA has cut the official cash rate by 225 basis points (2.25%), in an effort to boost the non-mining side of the economy and take the sting out of the high Australian dollar. Since late 2010, the Australian dollar has been trading above parity with the US dollar, at one stage reaching an all-time high of US$1.10.

The chances of the RBA cutting rates tomorrow are low, with the futures markets pricing in just a 7% chance of a rate cut. That could fall further, with housing construction approvals soaring 10.8% across Australia in July, according to the Australian Bureau of Statistics (ABS), more than double the 4% the market was expecting.

Mortgage broker Australian Finance Group says loans for investors in NSW hit 49.5% of all home loans processed – the highest level of investor activity ever recorded by the company for any state. The company also said it had processed a record $3,613 million in home loans in August, another record for the company.

At the same time, capital city home prices have risen more than 5% in the past year, according to RP Data, with the Sydney and Perth property markets leading the way with increases of 7% and 9% respectively.

For troubled building materials companies such as Boral Limited (ASX:BLD), Fletcher Building (ASX:FBU), Brickworks (ASX:BKW) and Adelaide Brighton (ASX:ABC) , this could kickstart an improvement in revenues and profit growth, after years of struggle.

Foolish takeaway

No one seriously expects the RBA to cut rates tomorrow at its monthly board meeting, but several economists expect further rate cuts before the end of the year, as inflation falls towards 2% and the Australian dollar remains around 90 US cents.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned.

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