Borrowers can breathe easy for the next few months, as economists don’t expect an interest rate rise for the remainder of 2011, while some are tipping a cut in the new year.
They can thank recent financial market turmoil, global economic growth worries, as well as doubts about the Australian economy, for the reprieve.
All 12 economists surveyed by AAP say the central bank will keep the cash rate at 4.75 per cent, where it’s been since November 2010, when its board meets on Tuesday.
None of those surveyed say there will be a rate rise before the end of the year.
Westpac is the only institution saying the Reserve Bank of Australia (RBA) will cut the cash rate cut in that period.
Five of the economists say there will be a rate hike in the March quarter of 2012, while three believe rates will be cut in that period.
In setting monetary policy, the RBA seems to be torn between doubts about economic growth and high inflation figures posted so far this year.
The annual headline inflation rate was 3.6 per cent in the June quarter and 3.2 per cent in the March quarter, well outside the RBA’s target range of two to three per cent.
However, the money market has been pricing in a rate cut based on global growth worries, spiralling government debt in Europe and the weak non-mining sectors of the Australian economy.
In July, Westpac was the first institution to predict a cash rate cut before the end of 2011 for similar reasons.
But RBA governor Glenn Stevens says rising prices are still a concern.
“Inflation bears careful watching, but we can keep it under control,” he told a House of Representatives Economics Committee hearing on August 26.
“At this point in time, our terms of trade are at a record high, while our unemployment rate remains low.”
HSBC chief economist Paul Bloxham said recent Australian economic data doesn’t justify a rate cut.
“While the data have not been stellar, they also have not fallen in a hole,” he said.
“Not yet, at least.”
Mr Bloxham said recent global uncertainty weighing on local consumer confidence was more of a political problem than an economic one.
He expects Australia’s economy to stay strong, with Chinese demand for our mineral wealth to continue.
“Importantly for Australia, China continues to look as though its growth is being well and truly sustained,” he said.
“HSBC’s PMI (Performance of Manufacturing Index) shows that, as recently as August, China continues to grow and the slowdown we have seen is a soft, rather than a hard, landing.”
The Commonwealth Bank also believes global uncertainty is a reason to push back a rate rise until next year, but not a reason to cut.
“Changing monetary settings in response to market fluctuations divorced from the economic fundamentals is unlikely,” chief economist Michael Blythe said.
“Nothing in recent RBA commentary validates the apparent market pricing for substantial rate cuts.
“There are very few occasions over the past 15 years where above-average financial-market volatility was accompanied by a rate cut.”
