The cash rate is expected to stay on hold as the Reserve Bank gauges the effects of previous cuts and the falling Australian dollar.
The RBA is likely to keep the cash rate at 2.5 per cent when it meets for the first time in 2014 on February 4, according to an AAP survey of 13 economists.
Unexpectedly high inflation in the December quarter took the chance of a rate cut off the table for the near future, JP Morgan chief economist Stephen Walters said.
“It’s very difficult for an inflation-targeting central bank, even if they wanted to cut rates in the medium term, to think about doing it after a high inflation result,” he said.
“Plus there’s enough evidence over the summer period that activity in the consumer sector picked up and housing activity has been reasonably strong.
“The currency has come off a bit as well, which is what the RBA wanted, so it all adds up to an unchanged cash rate.”
But high unemployment would compel the RBA to cut the cash rate again later in 2014, Mr Walters said.
JP Morgan expects unemployment to rise to 6.5 per cent by mid-year.
“We think the Aussie dollar will essentially be where it is now in a years’ time, plus we think the budget is going to be pretty tough when that comes out in May with lots of austerity and spending cuts,” he said.
“I think that combination of the currency being pretty flat, unemployment going up, the budget in pretty poor shape, probably means the RBA is going to need to do a little more to keep the economy moving forward.”
AMP Capital chief economist Shane Oliver said the RBA was at the end of its rate cutting cycle, and expects a rate hike later in the year.
“Interest rates have already been cut to record lows and evidence continues to build that rate cuts are getting traction,” Dr Oliver said.
“The Australian dollar has continued to fall and inflation is running slightly higher than expected.
“Our assessment remains that the RBA would prefer to wait for the full impact of past rate cuts to flow through and is now more focussed on achieving and maintaining a lower level for the Australian dollar.”
