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No RBA shock on Melbourne Cup day

AAP logoAAP 31/10/2016 Colin Brinsden, AAP Economics Correspondent

As punters lick their wounds after a day at the races, one almost dead cert lived up to expectations - the Reserve Bank left the cash rate unchanged at a record low 1.5 per cent at its monthly board meeting.

Economists were virtually unanimous in expecting a steady cash rate on Melbourne Cup day this year, although the central bank had changed rates six times in the past 10 years on this day.

"Having eased monetary policy at its May and August meetings, the board judged that holding the stance of policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time," governor Philip Lowe said in a statement on Tuesday.

Last week's consumer price index was slightly higher than economists had expected as a result of higher fruit and vegetable prices.

But underlying measures of inflation, which smooth out big price swings, remained benign and below the central bank's two to three per cent target.

Dr Lowe expects inflation to remain low for sometime yet given subdued labour costs in Australia and very low cost pressures elsewhere in the world.

"With inflation only likely to track along the bottom of the 2-3 per cent target band next year there will be scope to ease (rates) further should growth, and the labour market in particular, profoundly disappoint," Westpac chief economist Bill Evans said.

"That is not our forecast but we acknowledge that if rates are to move next year, it will be down rather than up in 2017."

Dr Lowe also noted higher commodity prices have supported a rise in Australia's terms of trade, albeit after substantial declines over the past few years.

In its annual report, the Australian Taxation Office blamed the drop in commodity prices in 2015/16 for the worst collection of company tax in five years as they flowed through to weak growth in company profits and capital gains.

The report shows companies paid $62.6 billion in income tax in 2015/16 compared with $66.9 billion in 2014/15, the lowest amount since 2010/11.

Dr Lowe said the economy is growing at a moderate rate, but while household consumption has been growing at a reasonable pace, it appears to have "slowed a little recently".

Consumer confidence, a key pointer to future retail spending, edged up just 0.4 per cent in the past week after a solid 3.6 per cent drop the previous week.

The weekly ANZ-Roy Morgan consumer confidence index remains well above its long-term average.

"(But) the uptrend looks to have lost momentum, with the four-week moving average at its lowest level since mid-June,". Felicity Emmett, ANZ head of Australian economics, said.

She believes this may reflect some concerns over the global outlook, with the US presidential election driving renewed volatility in financial markets.

"With the election a week away, global uncertainty is likely to dominate domestic events in the very near term," she said.

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