Economists predict cash rate to remain steady, for now

by Julia Corderoy30 Jan 2015
As the Reserve Bank's monthly monetary policy board meeting edges closer, the latest survey reveals economists and industry analysts are widely predicting the cash rate to remain on hold, but a change in the near future is imminent. 

The monthly Reserve Bank survey compiled by found that 28 of the 30 economists and analysts surveyed expect the cash rate to remain steady at 2.5% on Tuesday 3 February. 

However, this is the first time since August 2013 that the survey showed some panellists forecasting a cash rate change for next cash rate announcement. This was also the last time the cash rate moved; it dropped by 0.25 percentage points. 

Sixty percent of the panellists (18 out of 30) are expecting the central bank to announce a cash rate change this year, half of which are expecting the change as early as the first quarter. This is a huge jump from last month when just three panellists expected the cash rate to move in the first quarter of 2015.

The experts are split on the direction the cash rate will move, however, with 14 expecting the next cash rate change to be a drop. The remaining 16 experts are forecasting the next cash rate move to be an increase.

Nathan McMullen, head of product and digital at RAMS, is one of the two panellists predicting the cash rate to move on Tuesday. He says the benign inflation outlook, low consumer confidence and the need to depreciate the Australian dollar will convince the Reserve Bank to cut rates.

Michael Witts, head of treasury at ING Direct, disagrees, saying the Reserve Bank is likely to stay put for the time being.

“The housing market remains strong [and] the decrease in petrol prices has effectively increased consumers disposable income. The labour market has started the year strongly. Therefore, the RBA will likely keep rates unchanged,” he said.