RBA board to make 2017’s first cash rate call

by Miklos Bolza07 Feb 2017
With the board of the Reserve Bank of Australia (RBA) due to make its first cash rate call of the year, the general consensus is that rates will be kept on hold at 1.5%.
 
On the Finder.com.au panel of 33 financial experts, each one predicted a hold call later on today. This was despite uncertainty caused by US politics, slow national inflation growth and rising house prices.
 
Amongst brokers, almost 86% said the cash rate will stay on hold today, according to a survey of more than 300 brokers by digital mortgage marketplace HashChing.
 
Steve Mickenbecker, group executive of ratings and financial services for CANSTAR, told Australian Broker that the current uncertainty had left the RBA in “wait and see mode”.
 
“With the unanticipated move of the Aussie dollar above 76 US cents, the Reserve Bank would love to cut rates tomorrow. An inflation rate below the target range and weak GDP growth strengthens the case.”
 
However, continuing property inflammation in Sydney and Melbourne means the RBA is unlikely to throw smoke onto the fire, he said.
 
“If they did, one would have to question how much would be passed on to borrowers in any event. During the last move the banks handed on half of the benefits and with out of cycle increases since, even that half has been severely eroded.”
 
While there have been some positive signs for the economy, such as rising resource prices, it is too early to tell, Mickenbecker added. This means the RBA will likely wait for more positive data prior to an upward trend move.
 
Peter Munckton, head of markets analysis at Bank of Queensland, echoed similar sentiments. Nothing will happen as this is what the market is expecting, he told Australian Broker.
 
“If we look at the economic information that the RBA has received since the last meeting in December, the global economy has gotten stronger and the currency is a little bit higher.
 
“There has probably been some mixed news on the domestic economy. It’s not going quite as strongly as we’d hoped. There might be some signs that inflation may have bottomed and it’s certainly consistent to what the RBA would have forecasted.”
 
Munckton predicted this would give the Reserve Bank confidence that it was edging towards the restoration of inflation levels, meaning the board would leave the cash rate on hold.
 
As for the future, there wouldn’t be any further rate rises this year, he said.
 
“They’re at 1.5% right now. The economy is just doing ok, wages growth is pretty modest right now, the exchange rate is going up – all those things say that it might be a little bit difficult for inflation to get back to the RBA target by year end. There’s a real risk that it may not get there and, if that’s the likelihood, what you should do is keep your interest rates low.”
 
If there is going to be a change, Munckton added, a cash rate cut will be far more likely.
 
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