Australian rates to stay low for longer than generally thought

The Reserve Bank of Australia (RBA) kept its policy rate on hold at 2.5% at its meeting today, as widely expected. With recent data weak, most analysts have reined in their expectations for policy tightening but the consensus is still that the RBA will raise rates next year. By contrast, we think rates will remain at their current low level much longer – into 2016 – and that, if there are any policy changes in coming months, it is more likely that rates will be cut than hiked.