Outcome-November 2012

Shadow board not backing a rate day cut. Maybe later.

The Shadow Board, which gives its views ahead of the decision by the Reserve Bank of Australia, sees little evidence for lower rates on cup day.  The Shadow Board is made up of influential economists from the private sector and academia.  They were asked to rank their preferred outcomes for the cash rate.

Keeping the interest rate unchanged at 3.25 percent receives around 60 percent weight, considerably above the next most popular setting, a decrease to 3.00 percent, with nearly 30 percent weight.

The Shadow Board sees evidence of weakening inflationary pressures medium term.  The most preferred setting for interest rates suggests a move to 3.00 percent within six months. But the risk that rates should be lower still is small, at around 30 percent.

There are conflicting view of the economy at the 12-month ahead horizon. Bob Gregory and Saul Eslake back strongly rates in the range 2.50 to 2.75 a year from now. Several Shadow Board members anticipate that the economy will likely require rates above that level.

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