The central bank is unlikely to move the interest rate before the end of 2011 and economists are divided on whether the cash rate will go up, down or stay on hold in 2012.
The Reserve Bank of Australia (RBA) seems to be torn between doubts about global economic growth and the high inflation driven by rising prices for Australia’s mining commodities.
Global financial markets have been volatile in the past week as worries persist over whether the Eurozone will come up with an effective approach to containing the Greek debt crisis and prevent the debt contagion from spreading to other countries.
All 15 economists surveyed by AAP say the RBA will keep the cash rate at 4.75 per cent at next week’s board meeting, and only two say there will be a move before the end of the year – one up and one down.
Of the eight that are predicting a cash rate move in the next eight months, three say the cash rate will go down and five say it will go up.
JP Morgan Australia economist Stephen Walters expects the RBA to stay on the sidelines throughout 2012.
He said, while Europe only gets eight per cent of Australia’s direct exports, there could be a flow on effect if Europe suffers a mild recession.
“The downgrades (in economic growth) eventually will cascade through the forecasts for the emerging economies in Asia, which receive nearly half our exports,” Mr Walters said.
“We will be downgrading the growth forecasts for Australia after we see the size of the downgrades for our major export markets to our north.
“Recent RBA commentary indicates they are comfortable to remain inactive until the balance of risks shifts decisively one way or the other.”
Nomura chief economist Stephen Roberts says he expects the only move by the RBA before the end of 2012 to be a single rate hike, probably in February.
“It (the forecast) is contingent that some of that uncertainty around global growth settles quite a deal over the remaining months of this year.
“So there will be a slow but sure build up for the solution for Europe.”
Mr Roberts is not worried about a recession in the US, and expects slow but steady economic growth in the second half of 2011.
“Providing that happens for the US and Europe then there’s not too much to worry about with Asian growth,” he said.
Westpac was the first institution to forecast cuts in the cash rate and senior economist Matthew Hassan said a number of rate cuts would be needed to stimulate growth in the face of a weaker domestic economy coupled with deteriorating conditions abroad.
“We would say that the prospects of a quick and enduring resolution to Greece and Europe are pretty remote,” he said.
“I think in terms of Europe’s debt crisis, there are so many stumbling blocks, particularly in the political side of the things that make it very difficult to arrive at a resolution, let alone get there quickly.”