The Reserve Bank has unveiled its latest determination on interest rates in Australia, following its first meeting of the year.
Following its monthly board meeting on Tuesday (4 February 2020), the RBA announced that it would keep interest rates on hold for the time being, at the record low of just 0.75 of a percentage point.
Industry commentators and finance pundits had overwhelmingly bet on no movement by the RBA; however, many insisted that a cut is still very much on the horizon.
According to Finder’s RBA Cash Rate Survey, nearly four out of five economists 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 by Finder 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).
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 hasn’t 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”.
Two more cuts
In its latest Access Economics Business Outlook, Deloitte predicted that the RBA will cut rates twice more, “partly as the economy is still weak, but mostly because inflation is so stubborn”.
The financial services giant explained that rate cuts aren’t simply a reflection of a weaker economy, they are aimed to cater for a different economy — with more profits and more jobs.
“However, the punters have never lived through a time when the RBA was cutting rates for two reasons rather than one. They are therefore assuming that everything the RBA is doing and saying relates to the first reason — a weaker economy. That simply isn’t true,” Deloitte opined.
“Interest rates are really low, and that’s where they’re set to stay for some time,” the giant assured, adding that while the RBA wants the Feds to “pitch in to help”, “absent a bigger crisis, that doesn’t look likely”.
Maja Garaca Djurdjevic is the editor of My Business.
Maja has an extensive career as a journalist across finance, business and market intelligence. Prior to joining Momentum Media, Maja spent several years unravelling social, political and economic intricacies in Eastern Europe.