Will the RBA finally move the cash rate?

by Miklos Bolza05 Sep 2017
With another cash rate call by the Reserve Bank of Australia (RBA) rolling around today, the experts have again come out with the same prediction: the case rate will remain on hold for another month.

All 33 finance and economics specialists participating in the monthly finder.com.au RBA Survey said that the rate would remain steady at 1.5%.

AMP Capital's head of investment strategy and chief economist Shane Oliver said the cash rate was “stuck between a rock and a hard place”.

“Solid business conditions and labour market indicators along with the RBA's expectations for strong growth argue against a rate cut but sub-par growth at present, risks around consumer spending, low wages growth and inflation and the rise in the Australian dollar argue against a rate hike,” he said.

Michael Yardney, founder of Metropole Property Strategists, echoed these sentiments, saying that the RBA was indeed caught when it comes to moving the cash rate.

“The RBA can't raise rates as it would stifle our fragile economy and would lead to a higher Australian dollar. Similarly, it can't lower rates as this would fuel the Sydney and Melbourne property markets.”

Christopher Schade, investment manager at MyState-owned Tasmanian Perpetual, said the current cash rate level was appropriate.

“[The] economy is performing a little below trend, inflation remains well contained, and the Aussie dollar is higher than the RBA would like. Holding rates at their current highly accommodative level is appropriate to allow the economy to continue to gain momentum over the coming couple of years.”

Paul Bloxham, HSBC chief economist Australia, New Zealand and global commodities, also said that the RBA cash rate would remain on hold although he predicted that the rate would rise in the first quarter of 2018.

“Above trend growth, a modest lift in wages growth and underlying inflation, plus still uncomfortably exuberant Sydney and Melbourne housing markets are, in our view, likely to be sufficient to see the RBA lifting its cash rate in early 2018.”

Finally Timo Henckel, chair of the RBA Shadow Board at the Australian National University (ANU), said there was a 61% probability that the cash rates would remain as is, a 2% chance they would fall, and a 37% chance they would go up this month,

Looking at the next six months, the RBA shadow board forecast a 69% likelihood of a rate hike, a 24% chance the rates would stay at the current level, and a 7% probability that rates will be cut.

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