Experts turn eyes on RBA

With the monthly cash rate call once again upon us, Australia’s economic leaders have offered their two cents on what the decision will be

Experts turn eyes on RBA



Economic and financial experts across Australia believe that the Reserve Bank of Australia (RBA) will leave the cash rate on hold at 1.5% today.

All 35 economists surveyed by in the site’s monthly cash rate survey made the call that the RBA will keep rates on hold. If correct, this will mean an entire year without change with the last movement occurring with a rate cut on 3 August 2016.

“Last month, the Reserve Bank of Australia made it clear that its current monetary policy setting is appropriate for the time being and I believe this will continue to be the case at the August Board meeting,” said Jessica Darnbrough, head of corporate affairs at Mortgage Choice.

For Richard Robinson, associate director of economics at BIS Oxford Economics, the RBA is between a rock and a hard place.

“Although RBA would like to cut rates to take upward pressure off the Australian dollar, it can't cut rates as it fears re-stoking the residential property market. With inflation low and particularly wages growth very low, there is no need to raise rates for at least two years.”

Chris Schade, senior business analyst at non-major lender MyState, said that below trend economic performance and a high Australian dollar meant the current interest rate setting remained appropriate.

“Holding rates at their current highly accommodative level is appropriate to allow the economy to continue to gain momentum as the unwinding of the mining boom ends, the housing construction peak passes (but activity remains at a robust level for some time – ie no major drop) and, hopefully, other sectors pick up.”

Nicholas Gruen, CEO of Lateral Economics, was far more succinct when explaining why he believed rates would remain steady.

“[RBA governor] Phillip Lowe said so!” he said.

Looking ahead, the RBA Shadow Board at the Australian National University (ANU) said there was a 68% chance of a rate hike in the coming six months. This was down from the 71% predicted in July.

Likewise, there was a 25% chance the rates would remain on hold and a 7% the rates would fall in the next six months (compared to 23% and 6% respectively which were measured last month).

The RBA Shadow Board is based at the Centre for Applied Macroeconomic Analysis (CAMA) at the ANU Crawford School of Public Policy. It brings nine leading economic experts together to make a probabilistic call on the optimal setting of interest rates ahead of each monthly RBA Board meeting.

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RBA hikes could trigger crash: UBS

Future loan rate cuts may be on the cards

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