Commonwealth Bank of Australia forecasts central bank to keep policy rates steady

Economists at the Commonwealth Bank of Australia said that it expects the Reserve Bank of Australia to hold interest rates at a record low of 0.25% at its Oct. 6 board meeting, contrary to calls for a cut from two major rivals.

Financial markets are betting on a 60% chance of a cash rate cut by the country’s central bank from 0.25% to 0.1% now. Three-year government bond yields fell 0.2%, suggesting a 33% chance that the yield curve target will also be downgraded to 0.1% from 0.25%.

Gareth Aird, CBA head of Australian economics, said that messing around with the cash rate risks other important short-term rates to drop into negative territory. 

Earlier this week, Westpac Banking Corp Economist Bill Evans changed his RBA rate call to forecast a 15 basis point cut, while National Australia Bank has said easing is likely in the coming months.

The shift in stance came after RBA Deputy Governor Guy Debelle said that he left the door open for additional monetary easing.