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Cash rate to remain steady for 18 months: HSBC (2)

As rate cuts earlier in the year flow through to the housing market, HSBC has suggested the cash rate will remain unchanged at two per cent for the next 18 months.

In his July 3 economic update, HSBC’s chief economist for Australia and New Zealand, Paul Bloxham, said the economy’s “rebalancing act” is continuing.

“Q1 GDP confirmed that household consumption is growing solidly, dwelling investment is in a strong upswing and resource export volumes are ramping up, as new capacity comes online,” he said.

“The lift in these areas has more than offset the drag from falling mining and public investment, leaving solid GDP growth in the first quarter, although it was still below trend over the year.”

There are also signs the Reserve Bank's February and May rate cuts have been feeding through to a further lift in housing markets, with prices rising by 9.8 per cent year-on-year in June, and building approvals reaching a new high in May.

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“The clearest sign of improving conditions has been in the labour market, with jobs growth running at a three-and-a-half-year high of 2.0 per cent year-on-year in May. At this rate, jobs growth has been sufficient to keep the unemployment rate steady at 6.0 per cent to 6.2 per cent in recent months,” Mr Bloxham said.

The lift in activity and steadying of the unemployment rate are expected to keep the RBA on hold this month, Mr Bloxham said.

“If these improving trends continue, as is our central case, we expect that the RBA will not need to deliver further cuts in this easing phase,” he said.

Cash rate to remain steady for 18 months: HSBC (2)
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