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RBA to hold rates on Tuesday, but drop foreseen by May: Economists

Maja Garaca Djurdjevic
Maja Garaca Djurdjevic
03 February 2020 1 minute readShare
RBA

With the Reserve Bank of Australia due to sit down on Tuesday, everyone is eager to find out whether the board will opt for another rate cut.

Economists and finance commentators seem to have had a change of heart over the Christmas break on how the RBA board meeting will progress on Tuesday, with 87 per cent of experts predicting a hold of the cash rate, according to Finder’s RBA Cash Rate Survey.

Asked before the December meeting, two-thirds of experts told Finder that they are expecting the next rate cut to come in February. However, given recent events, only about one in 10 experts and economists still predict the RBA will cut rates, citing the bushfires, weak wage growth, low inflation and high unemployment as the main issues necessitating an easing.

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Besa Deda of St.George Economics said: “In the absence of wage pressures, inflation remains well below target. More stimulus is required to return growth to trend.”

Despite their expectations for February, economists insist that a cut is still very much on the horizon.

 

Nearly four out of five who made a forward prediction (not including February) forecast a cash rate drop by May 2020 (79 per cent, 23/29).

A quarter of experts predict a cut in March (24 per cent, 7/29), while nearly a third predict a cut in April (31 per cent, 9/29). Another quarter predict a cut in May (24 per cent, 7/29).

Only two of the 39 experts (5 per cent) on the panel thought the eventual move, whenever it happens, would be a rise.

‘RBA made wrong call’

When asked if the RBA was right to make three cuts in 2019, only half of the respondents said it made the right call (50 per cent).

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Of the other half of experts who disagreed with the Reserve Bank’s decisions, most (42 per cent) said the RBA should have cut less.

Graham Cooke, insights manager at Finder, said the RBA’s decisions will never please everybody.

“On the one hand, some experts say the cutting was overzealous and is seeing house prices soar while most economic metrics have been stagnant.

“Others think the RBA hasnt done enough to repair the economy in light of lagging employment and inflation figures.

“One thing is clear: three cuts have reignited the housing market and pumped up property prices across the country.”

With more cuts on the horizon, Mr Cooke opined that it remains to be seen whether cheaper credit and lower rates will be an “elixir or a poison pill”.

RBA to hold rates on Tuesday, but drop foreseen by May: Economists
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Maja Garaca Djurdjevic
Maja Garaca Djurdjevic

Maja Garaca Djurdjevic is the editor of My Business. 

Maja has a decade-long career in journalism across finance, business and politics. Now a well-versed reporter in the SME and accounting arena, prior to joining Momentum Media, Maja reported for several established news outlets in Southeast Europe, scrutinising key processes in post-conflict societies and enabling citizens to influence decision-making.

You can email Maja on [email protected] 

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