RBA to make third yearly cash rate call

by Miklos Bolza04 Apr 2017
The Reserve Bank of Australia (RBA) is set to make its April cash rate call today with economists and brokers widely predicting the rate to hold at 1.5% for the seventh month running.

“I think it’s a pretty safe bet that the Reserve Bank will keep rates on hold,” Savanth Sebastian, senior economist at Commonwealth Bank of Australia (CBA), told Australian Broker.

While the RBA is relatively upbeat about the medium-term prospects of the national economy, there would be a number of “hot button issues” the board will touch upon in their upcoming statement, he said.

“When we’re talking about those issues, there’s no question that housing and the Australian dollar are going to feature in terms of areas that they’re watching very, very closely.”

The RBA would not be contemplating rate cuts in this environment and it would be too early for rate hikes, Sebastian said.

Any rate hike would not occur until next year, he added, with the RBA providing more clarity around this towards the latter half of 2017.

“It’s unlikely they’ll need to raise rates. Inflation remains well and truly contained. There still needs to be a pretty decent lift on mining business investment for the Reserve Bank to feel comfortable about the growth prospects. I think they just want to continue to see how the economy transitions from mining to the non-mining investment profile.”

Steve Mickenbecker, CANSTAR group executive of financial services said that recent out-of-cycle rate hikes by the banks had already done the hard work for the RBA.

“In the last month, we saw all of the big four banks announce variable interest rate hikes, along with many other lenders. Investment home loans in particular have been hard hit, with the average variable rates rising by around 25 basis points.”

As this is hoped to slow down property price growth in Sydney and Melbourne without the need for a cash rate move, Mickenbecker predicted the rate would hold at 1.5%.

“The Reserve Bank must be grateful for a possible slowdown in key property markets, no upward pressure on the Aussie dollar, and at the same time not burning off the green shoots of business investment recovery.”

Sebastian and Mickenbecker’s sentiments echoed those of Finder.com.au’s RBA cash rate survey in which 37 out of 38 economists surveyed predicted rates would hold this month.

Of those polled, 86% predict the next rate move will be an increase, while 14% forecast the rate will drop. Of the 34 economists who gave detailed predictions of the next rate moves, 70% said a rise would not occur until next year.

Amongst brokers, 92% believe that the RBA would keep the rate on hold, according to the latest figures from HashChing which surveyed over 300 industry experts.

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