No Change on Cash Rate Predicted
By Peter Sarmas on 3 Jun 2013
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Ahead of tomorrow’s interest rate decision, financial news site Bloomberg found that a majority of economists forecast the RBA to keep the cash rate at 2.75 percent, reduced when the RBA met last month.
Twenty-four out of the twenty-five economists polled agreed that they expected the RBA would hold out on the current cash rate, while only one expected to see a change. Chief economist Shane Oliver of AMP Capital Investors expects the cash rate to continue to fall to a new low of 2.5 percent.
According to Oliver, due to the “toughish” budget and Ford’s announcement that they will close their manufacturing plants in Broadmeadows and Geelong, there is a “sense of gloom surrounding the Australian economy”.
While he expects us to see another 25 basis point rate cut tomorrow, he warns that it’s “another close call as the RBA may decide that having cut in May and with the fall in the Australian dollar it will wait and assess for now”.
“Against this though, the Australian dollar hasn’t really fallen enough to provide a big stimulus to the economy – it’s just at the low end of the range it’s been in for two years.”
Westpac chief economist Bill Evans agrees with Oliver that the key lending rate likely to drop, anticipating it to plunge to a record low 2 percent. Despite going against the trend of other leading Australian economists, Evans maintained his prediction that the RBA would slash rates once again, citing the glimpses of a weakening Australia dollar we have seen in recent weeks.
HSBC Australia and New Zealand chief economist Paul Bloxham supports the majority of the Bloomberg polled economists, on the ground that the recent depreciation of the dollar has added 0.1 percent stimulus to Australia’s GDP – “which is around the same as the estimated effect of a 0.25 percent rate cut. So the Australian dollar fall could be thought of as already delivering another rate cut,” says Bloxham.
Bloxham explains that this drop in the dollar shouldn’t be a cause for unnecessary concern. “As the RBA acknowledged at the beginning of the month, the economy was already showing signs of rebalancing. Retail sales are up, housing prices are rising, and new lending to households is picking up.”
