Reserve Bank unlikely to cut interest rates despite election uncertainty

Today's meeting of the Reserve Bank board is taking place against the backdrop of political uncertainty, both locally and abroad.

However, Australia's election deadlock and the global fallout from Britain's vote to leave the European Union are unlikely to swing the RBA's decision today.

Instead, the RBA is more likely to stay on the sidelines to assess any potential fallout, given the large range of known unknowns.

In the minutes from the RBA's June meeting, released before the Brexit vote on June 23, the RBA highlighted potential market volatility and turbulence for the British pound.

However, all market economists expect the RBA's cash rate to stay on hold at 1.75 per cent as the bank's board awaits the next official inflation reading on July 27.

RBA not 'paying attention to political developments'

Joseph Capurso, a senior currency strategist at the Commonwealth Bank, said while the election deadlock might be a talking point it will not figure heavily in this morning's RBA deliberations.

"I don't think the RBA is paying a lot of attention to the political developments," Mr Capurso said.

"Their mandate is to keep inflation in the 2 to 3 per cent target band.

"We think the RBA will wait for the next CPI (consumer price index) and, if that is a low number, the RBA will cut in August and possibly again in November."

The Reserve Bank last cut the cash rate in May on federal budget day after March quarter inflation unexpectedly slowed.

In addition to commentary about inflation and Brexit, economists will be watching for language on the Australian dollar, which was 75.3 US cents shortly before 9:00am (AEST).

While that is well below this year's peak of 78 US cents, the RBA has previously warned the resurgence of the dollar is a "complication" as exporters still recover from exchange rates of parity and above over recent years.

In possibly cutting rates in August, the RBA will also be gauging real estate prices in Sydney and Melbourne and whether a rate cut might fuel an already hot housing market.

Source: ABC News

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