Rates tipped to stay on hold until 2016

The chances of an interest rate cut before Christmas are diminishing, with the Reserve Bank still on hold and barely changing its commentary from a month ago.

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The cash rate will remain at 2.0 per cent for a sixth straight month after the RBA’s October decision, and with only two meetings left in 2015, that trend looks increasingly likely to extend into 2016.

“Markets have shaved the probability of a move this year to around 40 per cent, but still have a 100 per cent probability of a move by February or March next year,” Westpac chief economist Bill Evans said.

ANZ expects a quarter of a percentage point cut in February and again in May, taking the cash rate to 1.5 per cent.

But Westpac is forecasting no change through all of 2016, though Mr Evans warns a cut could come due to the risks posed by the global economic outlook and Australia’s jobs market and terms of trade.

CommSec chief economist Craig James also expects rates to remain on hold for at least another year.

“It is clear to us that the economy is picking up momentum but there are still challenges ahead, so interest rates should remain on hold,” he said.

Prime Minister Malcolm Turnbull is hopeful a period of low interest rates will soon deliver a boost in investment.

“There should be more investment, that is why confidence is so important,” he told 3AW radio.

However the latest weekly gauge of consumer confidence from ANZ and Roy Morgan showed a second consecutive fall, wiping away half the size of the bounce experienced after Mr Turnbull’s rise to the top job.

In two minor changes to the statement issued by the RBA after September’s rate decision, Governor Glenn Stevens noted recent financial market turmoil and soaring house prices in Sydney and Melbourne, but indicated they were not enough to spark a rate move.

“Equity market volatility has continued, but the functioning of financial markets generally has not, to date, been impaired,” he said.

The share market dropped more than seven per cent in the three months to the end of September, its worst quarter in four years, though in the first few days of October it has regathered more than three per cent.

Mr Stevens said home prices continue to rise strongly in Sydney and Melbourne, but trends in other cities have been more varied.

“Regulatory measures are helping to contain risks that may arise from the housing market,” he said.

Many lenders have hiked interest rates for investors and made it harder for them to get loans in response to a crackdown by Australian Prudential Regulation Authority, which wants growth in property investor lending to remain below 10 per cent.