The Reserve Bank fo Australia is likely to cut interest rates to never-before-seen lows this year, but economists don’t think the move will come this month.
None of the 13 economists surveyed by AAP expect the RBA to cut its cash rate at the May 7 board meeting, though most say rate cuts are on the cards this year.
Expectations of further rate cuts have grown in the past month following a rise in the unemployment rate and disappointing home build approvals figures, as well as news inflation remains under control.
Futures markets are currently pricing in a 55 per cent chance of a rate cut in May.
The RBA cut the cash rate 1.75 percentage points between November 2011 and December 2012, but has kept it on hold at three per cent, equal to its lowest level on record, since the start of this year.
National Australia Bank senior economist David de Garis believes the RBA will do more to stimulate the economy this year and is expecting two rate cuts by December.
But he thinks the central bank is likely to wait until June to cut again.
That would allow them to see another round of employment and retail sales figures as well as key capital expenditure figures for the March quarter – a key indicator on when investment in the mining industry will peak.
“There’s quite a lot of water to flow under the bridge before June, it doesn’t sound like they are in a super hurry right now so they might be inclined to hold off for another month,’ he said.
Bank of America Merrill Lynch Australia chief economist Saul Eslake is also expecting a June rate cut, though he says a move next week wouldn’t come as a complete surprise.
If the RBA does stay on hold next week, he expects the statement outlining the decision to show a change in the central bank’s outlook and assessment of the economy.
He said the RBA is likely to be less confident that last year’s interest rate cuts were providing enough support for the economy.
“Our inclination is to say that they won’t cut next week but they will harden up the easing bias,” he said.
But Commonwealth Bank senior economist Michael Workman expects the RBA to stay on hold for the remainder of the year.
He says consumer spending remains strong enough to dissuade the central bank from cutting, and is likely to remain that way.
“You’d need to see quite a degree of weakness in consumer related activity before the RBA moves and its a little bit difficult at the moment because some areas of consumer spending, like new car sales, are quite strong,” he said.