Economists expect the reserve bank will keep the cash rate steady at its next meeting, citing comments suggesting its benign view of domestic and global conditions.
The Reserve Bank of Australia (RBA) kept the official interest rate on hold at 4.25 per cent its February 7 meeting, after two cuts of 25 basis points each in November and December.
All 13 economists surveyed by AAP believed the cash rate would remain steady at the RBA’s March 6 meeting.
In the minutes from its February meeting, the RBA said market volatility in the euro zone had eased on the back of the European Central Bank’s liquidity operations.
It also noted an improvement in data from the US and China, while the domestic economy remained mixed, with strong investment and demand offset by weak retail and construction sectors.
RBC economist Michael Turner said recent comments from RBA governor Glenn Stevens, deputy governor Philip Lowe and assistant governor (financial markets) Guy Debelle had reinforced the central message of the central bank’s February meeting.
“They’ve laid out their points fairly clearly. They seem pretty comfortable at the moment, and there don’t seem to be too many developments offshore to suggest a different tone,” he said.
“We still think there could be cuts later on, but we’re not as confident about them as we were prior to the February meeting.”
Mr Turner said further cuts would be influenced more by domestic factors than events offshore.
“We think the labour market is going to soften a bit more than their baseline scenario which should keep wage outcomes fairly benign and inflation hovering in the bottom of their two to three per cent target,” he said.
St George chief economist Besa Deda said an improved outlook on the global economy had meant the RBA was more reluctant to adopt a rates-easing approach.
“I think some of the core reasons why they were cutting rates last year have been watered down slightly,” she said.
“Sentiment over Europe has improved, and market volatility has also improved since around mid-December, particularly when the ECB provided extra liquidity measures.”
Ms Deda said the RBA was closely watching domestic data.
“Their rhetoric has suggested that there is a higher hurdle in terms of domestic data to get another rate cut across,” she said.
“I don’t think the recent data is anything that would warrant them to cut rates as soon as next week.”
HSBC chief economist Paul Bloxham said that global risks were still a key factor in determining where the RBA would move in 2012 but, he suggested, a rates hike in 2013 was not out of the question.
“We think that what will motivate another cut will be global risks, as well as further easing in the labour market, with inflation comfortably low enough for the RBA to feel they can respond by cutting rates a bit further,” he said.
“We think there will be a modest easing in rates. But, looking ahead to 2013, we expect that they’ll have to start lifting rates.”
Commsec chief economist Craig James said the central bank, in its rate decision, would have to consider increased costs for the major banks.
“We’ve got to watch things like the cost of funding for banks,” he said.
“I think what the Reserve Bank was surprised by was that when it cut the cash rate by 50 basis points, it didn’t expect that the banks would follow through with the full cut.
“I think that’s a key reason why rates weren’t cut in February, because the Reserve Bank thought there was already enough stimulus in the system.”
