RBA set to make May cash rate call

by Miklos Bolza02 May 2017
With the Reserve Bank of Australia (RBA) set to make its official cash rate decision for May today, experts have unanimously predicted that the interest rate will be kept on hold for the ninth month running.

The monthly finder.com.au Reserve Bank Survey polled 34 experts and economists – all of whom expect the cash rate to remain on hold at 1.5%.

“Although momentum is building for a rate cut, there is no clear case yet. The RBA is increasingly pincered between its narrative of high house price growth, a clearly weakening economy, and independently higher mortgage rates,” said Andrew Wilson, chief economist at The Domain Group.

Shane Garrett, senior economist at the Housing Institute of Australia (HIA), said there was “no particular advantage” in changing the rates at this stage.

Michael Yardney, director and founder of Metropole Property Strategists, also predicted rates would hold.

“The recently released inflation figures, while moving into the RBA's target range, are on the low side. Until job numbers improve it would be safe to assume the RBA won’t be hiking interest rates to slow the property markets down. On the other hand they can't afford to drop rates and fuel our property markets,” he said.

In a survey of more than 300 mortgage brokers by fintech HashChing, 95.6% of respondents said the cash rate would remain on hold.

The RBA Shadow Board at the Australian National University (ANU) has made the same forecasts, predicting rates would stay at 1.5% this month.

The shadow board set the probability of a hold call at 57%, a rate cut at 3% and a rate rise at 40%. This means the predicted chance of rates remaining steady is 3% higher than it was in April with the odds of a rate rise 3% lower.

Global uncertainty around subjects like Donald Trump and North Korea were some of the biggest issues for the economy, said Chair of the RBA Shadow Board Timo Henckel, while domestically all eyes would be on the upcoming Federal Budget.

“The big unknown is this month’s budget. It will likely include a housing package yet big reforms such as changes to negative gearing and capital gains tax concessions are off the table. The government’s announcement to fast-track last year’s $50bn infrastructure plan will generate a sizeable fiscal stimulus,” he said.

Over the next six months, the Shadow Board estimated a probability of 73% for a rate rise, 23% that rates would remain on hold, and 4% that rates would be cut.

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