Election week rate cut not likely to happen

MORTGAGE holders hoping for an election week rate cut are going to be disappointed, banking giant HSBC says.

The Reserve Bank previously lowered the cash rate to a 53-year low of 2.5%, with the Coalition claiming it was a sign of underlying weakness in the economy.

With Australians heading to the polls just four days after the RBA meets, HSBC's Australian and New Zealand chief economist Paul Bloxham predicted the Reserve Bank would hold fire on another cut and instead opt for a wait-and-see approach.

"It seems likely to sit on the sidelines and watch the economy develop," Mr Bloxham wrote in a report.

"Three key things to watch will be what happens to confidence after the election, where the Australian dollar heads from here and, whether the economy shows more signs of rebalancing. The RBA has highlighted these factors in recent commentary."

Mr Bloxham said RBA Governor Glenn Stevens had hinted at concerns about confidence.

In his last speech Mr Stevens drew a direct link between weak business confidence and the lack of clarity about the "policy framework and objectives", which Mr Bloxham interpreted as a direct criticism of the state of politics in Australia.

And he said the election campaign had done nothing to improve confidence.

"The lead up to the election has done little to change this situation, with campaigning leading to even more uncertainty about the policy environment and little clear direction," he said.

"The election will hopefully deliver some more certainty about the policy framework and objectives, whichever side wins."



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