The Reserve Bank is unlikely to deliver a Melbourne Cup Day interest rate cut because the Australian economy faces below-trend growth in 2016, Westpac's chief economist Bill Evans says.
His comments came as new research showed that growth in the Westpac-Melbourne Institute Leading Index, which indicates the likely pace of economic activity three to nine months into the future, remained stuck below trend for a fifth month.
Mr Evans said trend growth in the economy next year was now likely to be nearer to 2.75 per cent than three per cent, but better than the annual pace of 2.0 per cent recorded in the June quarter.
"The Reserve Bank board next meets on November 3. We do not expect the board to decide to cut rates," he said.
"A rate cut in early next year would require the bank to be forecasting growth in 2016 to be 2.5 per cent or less without a policy response."
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Mr Evans added that the key drivers behind expectations of a modest lift in growth in 2016 included a rise in consumer spending, increased exports and improvements in investments outside the mining sector.
"These positive factors will be partly offset by a slowdown in dwelling investment from 10 per cent to 2.2 per cent as the residential building boom reaches its peak."
