It’s going to be close, but rates are tipped to rise

It’s almost too close to call, but economists are leaning towards an interest rate rise of 25 basis points when the RBA board meets today as the bank continues its strategy of taking rates back to a “normal” level.

According to an economist poll taken by Reuters, 60% of economists are tipping a rise of a quarter of a percent, which would take the official cash rate to 4.25% and boost average monthly loan repayments on a $300,000 loan by $50.

ANZ chief economist Warren Hogan is one of those tipping a rise, driven partly by the strength of the housing market.

“The housing market has remained resilient and this suggests that mortgage rates are still on the expansionary side of normal. These developments in the housing market over the past couple of months don’t pose a near-term threat to macroeconomic stability because credit growth has remained relatively well behaved, but the risk is that this will not remain the case as the expansion continues, thereby requiring more rate rises sooner rather than later.”

Macquarie Group interest rate strategist Rory Robertson is another expecting a rise.

”China and bulk-commodity prices are booming, so too local home prices, and the world’s biggest economy (the US) increasingly is getting back on its feet,” he said yesterday.

“After its recent high-profile efforts to advertise higher interest rates, the RBA leaving policy unchanged this week would be a major surprise.”

On the flipside however, Westpac chief economist Bill Evans thinks the RBA might wait and see how what impact its recent rate rises have had.

“With rates so close to neutral and rates having been increased at four of the last five board meetings a decision to await further evidence on the cumulative impact of the last four rate hikes would make sense.”

Check back after 2.30pm this afternoon for full coverage of the rates decision.