Yahoo Finance Cut, hold or hike: what to expect at today's's cash rate announcement
The Reserve Bank of Australia (RBA) will announce its third interest rate decision for the year today.
The cash rate has remained on hold at a record low 1.5 per cent since August 2016, but is it time for a change?
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Economist Stephen Koukoulas thinks so.
The Australian economy is faltering and the risk is that it will weaken further if nothing is done to address this decline, he said.
Not only has there been recent confirmation of a per capita GDP recession – that is, on a per person basis the economy has been shrinking for two straight quarters – but inflation is embedded below 2 per cent, wages growth is floundering just above 2 per cent, house prices are dropping at 1 per cent per month and dwelling construction is in free fall, Koukoulas said.
“Add to this cocktail of economic woe an unambiguous slide in global economic conditions, general pessimism for both consumers and business alike and a worrying slide in the number of job advertisements all of which spells economic trouble,” he said.
“Blind Freddie can see that there is an urgent need for some policy action. And the sooner the better.”
But not everyone shares his view.
Nerida Conisbee, chief economist of REA Group, said she sees a rate drop coming in the future, but not this month.
“While the likelihood of a cut is increasing, this month is still too early,” she told a Finder survey
“If economic data continues to deteriorate, then we will likely see movement in the second half of the year,” she said.
In fact, this sentiment is shared by many.
35 of the 36 experts and economists surveyed by Finder forecast that the cash rate will stay on hold tomorrow for the 29th consecutive meeting.
“While the threat to growth and inflation from the housing downturn (via reduced construction activity and negative wealth effects) is such that the RBA should (and might) cut interest rates on Tuesday in order to get in before unemployment starts rising the most likely scenario is that they will continue to hold,” AMP’s Shane Oliver said.
“The RBA probably needs to see more evidence that the slowdown seen in the second half last year is not just temporary, that consumer spending is under serious threat and that this will drive higher unemployment and lower for longer inflation.”
“It will probably also want to see what sort of fiscal stimulus comes out of the budget and the Federal election outcome. So rate cuts are probably still several months off,” he said.
Sean Langcake of BIS Oxford Economics agrees, pointing out that monetary poilicy remains very accomodative.
“Domestically, there has been very little new data in the last month, and none would cause the Bank to change its course.”
However, seventy-six per cent of those surveyed by Finder expect the next rate change, whenever it does happen, to be a decrease.
This belief is consistent with the 75 per cent who held this prediction last month.
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