Homeowners can bank on at least one interest rate cut by the end of the year, and it’s possible it could come on Tuesday.
AAP’s survey of 17 economists on Friday revealed all but two expect the Reserve Bank of Australia (RBA) to cut the cash rate by December.
Most expect the cut to come in November though five of those surveyed expect the central bank to move at its next board meeting on Tuesday, October 2.
Nine of the 17 also expect the RBA to cut at least twice by the middle of 2013.
Futures markets currently put the likelihood at an October rate cut at about 60 per cent.
The RBA has kept the cash rate on hold at 3.5 per cent since June, after cutting by 1.25 percentage points since November 2011.
Many economists say an uncertain economic outlook in China, Australia’s biggest trading partner, will weigh on the RBA when it meets on Tuesday.
Meanwhile, a relatively benign inflation outlook gives the central bank room to cut if necessary. The RBA currently expects inflation to remain within its target band of two to three percent through to the end of 2014.
Westpac chief economist Bill Evans believes the RBA will cut by a quarter of a percentage point on October 2.
He said the stubbornly high Australian dollar and falling terms of trade and a weaker jobs market justified a rate cut.
Although the unemployment rate was 5.1 per cent in August, Mr Evans said that has happened because of a drop in the number of people looking for work.
“There is plenty of scope for a cut given that inflation appears to be under control,” he said.
“Therefore, we think there will be two cuts this year and another one next year.”
However, Bank of America Merrill Lynch Australia chief economist Saul Eslake says the RBA is likely to hold on for one more month before cutting.
He said a recent move by the US Federal Reserve to stimulate the American economy and an announcement from the European Central Bank that it was willing to push down debt-laden member states’ borrowing costs through bond purchases had lifted global market confidence.
Meanwhile, commodity prices had stabilised in the past few weeks, following sharp falls, and the RBA could afford to wait another month before deciding to cut.
“The Reserve Bank appears to still be thinking that the effects of previous rate cuts are still working their way through.”
“So I think on balance that they will leave rates on hold on Tuesday,” he said.
But CMC Markets chief market strategist Michael McCarthy believes the RBA has finished cutting and is even forecasting a rate hike next year.
“I think the current rate-cutting cycle is over,” he said.
“I’m much more bullish than the market on China growth so I see a pick up in Australia’s economy next year, which will push inflation towards the upper end of the target band by the middle of next year (forcing the RBA to lift rates).”
