Australia central bank rates seen at record lows for two more years: Reuters poll

SYDNEY (Reuters) - Australia’s central bank is expected to hold rates at all-time lows well into 2021, a Reuters poll showed on Friday, as a dovish turn by its U.S. counterpart and a run of soft economic data at home quashed any probability of an earlier rate hike.

Two women walk next to the Reserve Bank of Australia headquarters in central Sydney, Australia February 6, 2018. REUTERS/Daniel Munoz

The Reserve Bank of Australia (RBA) stretched its record spell of steady rates in December when it held policy at 1.50 percent for a 28th straight month.

Economists now expect this period of inaction to continue for a long time to come.

The latest poll shows a median prediction of no change in rates through to the third quarter of 2021. Only six respondents forecast one hike by March 2020 compared with 11 in the previous poll.

The change in outlook follows disappointing third-quarter gross domestic product data in December while retail sales - a gauge of consumer health - have remained tepid.

The dismal reading on the economy, coupled with the U.S. Federal Reserve’s latest signal that it will pause future rate hikes, led the market to completely wipe out the chance of any local tightening.

Instead, investors are now pricing in a cut <0#YIB:>.

The market now sees an 80 percent probability that the RBA will trim the cash rate to 1.25 percent by April 2020.

The RBA’s commentary next week, therefore, will be critical in shaping investors’ view of where the policy is likely to head in the near term at least.

“To say there is a lot of focus on in the week ahead is an understatement,” ANZ economists said in a note.

RBA Governor Philip Lowe will give his first speech of the year on Feb. 6 - just a day after the board meeting while the RBA will publishes its quarterly economic outlook on Feb. 8.

“We think the bank will revise down its growth forecasts, but retain a positive medium-term outlook,” they added.

“This should see it continuing to express the view that the next move in rates is most likely up, if some way off. But the bank has a lot to consider, so a shift to a neutral stance can’t be ruled out.”

Reporting by Swati Pandey; Editing by Sam Holmes