Economists make predictions on cash rate shift

What do leading economists predict the RBA board will do with the official cash rate at its monthly meeting tomorrow?



Leading economists are expecting the Reserve Bank of Australia board to yet again keep the official cash rate on hold at its monthly meeting tomorrow.

All 16 economists and money experts in the monthly survey are expecting no cash rate change tomorrow, but they are divided on when the cash rate will rise.
Nine of the economists and experts in the survey – from AMP, ANZ, Bank of Sydney, ING Direct, RAMS, UBS, Heritage Bank, Moody’s Analytics and ME Bank – are forecasting the cash rate will not rise before next year.
“There’s no inflation pressure on the economy just yet so they can keep the rates low, and there's no need to cut them,” ANZ chief economist Warren Hogan said.

“The RBA will leave interest rates on hold, but this competing dynamic between a below-trend economy and a warming housing market will shape monetary policy in the next 12 months,” Moody’s Analytics senior economist Glenn Levine said.

But five respondents – from Commonwealth Bank, Commsec, Urbis, HSBC and St George Bank – expect a cash rate rise this year.
“Consumers opened their wallets a little wider in the first few months of the year and the housing cycle is in full swing,” Urbis chief economist Nicki Hutley said.
Ten of the 16 experts suggested the public’s reaction to federal budget cuts will delay the change in cash rate, with nine stating the economy still has to grow in stability before any significant cash rate changes occur.
The budget cuts have had a lot of people “huffing and puffing”, but really it is just down to individual perception, said Commsec chief economist Craig James. “There's no reason for the Reserve Bank to be cutting rates.”

And ING Direct head of treasury Michael Witts said: “Although consumers appear to reacted adversely to the measures announced in the budget it is too early tell what the lasting impact will be.” spokeswoman Michelle Hutchison said since the survey showed the majority of economists thought the cash rate would rise by the end of the next year, prospective first home buyers should hit the market while interest rates are low.
“The window of opportunity for first home buyers to get a head start on the property ladder is closing.”
Australian Bureau of Statistics data shows the number of first home buyers is at the highest level this year with 6,551 first home buyer loans financed in March.
In September 2012 almost 20% home loans were to first home buyers, but numbers dwindled down to about 13% of all loans financed in September 2013 – the lowest trough on record. The number has remained steady since then.

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