RBA will set national record tomorrow as dollar weakens

A clear majority of Australian economists believe rates will be left on hold tomorrow as the RBA looks to a lower Aussie dollar to fuel economic growth.

As the Reserve Bank gets ready to set a new national record when it sets the official cash rate tomorrow, economists are leaning towards the rate remaining unchanged.

The Finder.com.au Reserve Bank Survey of 30 leading economists and experts found most are expecting the cash rate to hold at the RBA’s first board meeting of the year. 

ANZ chief economist Warren Hogan said that although the balance of risks has sharply shifted towards further rate cuts over the past two months, the major bank thinks the RBA board will await more data before cutting rates.

“They will also want to communicate any easing bias that they now see,” Mr Hogan said.

Glenn Levine, senior economist at Moody’s Analytics pointed to the weakened Aussie dollar, which he believes removes one of the justifications for lowering rates.

In addition, latent concerns about the housing market would be exacerbated should prices and activity accelerate with another rate cut, he added.

NAB chief economist Alan Oster said it is “too early” to cut rates, while Richard Robinson of BIS Shrapnel said that a falling Australian dollar has created less pressure on the RBA to lower the official cash rate to 2.25 per cent.

“Plus it is still worried about residential price pressures,” Mr Robinson added.

“Although we think rates will be on hold for over a year, it's possible they may [be] cut later this year if the Australian dollar starts rising and/or the housing market cools,” he said.

While the housing market remains strong, the decrease in petrol prices has effectively increased consumers’ disposable income, ING Direct head of treasury Michael Witts explained.

“The labour market has started the year strongly,” he said. “Therefore, the RBA will likely keep rates unchanged.”

My State Bank general manager of sales and distribution Huw Bough said that although the lender believes the odds are in favour of the next move being a cut, it is more likely to occur in March or April.

“Developments since the end of November will be sufficient to cause the RBA to revisit their statement that the 'most prudent course was likely to be a period of stability in interest rates ...’,” Mr Bough said.

“With below-trend growth and subdued inflation, further assisted by the significant decline in the price of oil, we believe the odds now favour at least one further reduction in the cash rate – potentially two,” he said.

The RBA could break its current record of keeping rates on hold for 16 consecutive months if it decides against changing the cash rate tomorrow.

Alternatively, if rates are cut, they will reach a new record low of 2.25 per cent.

While the official cash rate is expected to remain on hold, finder.com.au has warned Australians to brace for interest rate changes as early as March.

promoted stories

Latest News

Recommended for You