The vast majority of economists expect the board of the Reserve Bank of Australia to leave official interest rates on hold at 3% when it meets today, but experts remain divided as to when interest rates may start heading up.
Interest rates have been on hold since May, after the RBA slashed rates from 7.25% to 3% between September 2008 and April this year.
Statements from RBA Governor Glenn Stevens have become increasingly more upbeat over the last few months. In a speech last week, Stevens declared: “It appears at this stage, however, that the downturn we are having may turn out not to be one of the more serious ones of the post-War era, in contrast to the experiences of so many other countries.”
The upbeat statement led economists to predict that further rate cuts are probably off the cards. In today’s statement from Stevens, economists are going to be looking closely to see whether the phrase “scope for further easing [of rate]” will be included, as it has been for the past nine months.
Bond markets are now pricing in a 60% chance that rates will rise as early as December this year, although most experts believe this is too early.
Chief economist at Westpac, Bill Evans, agrees that the rate cutting cycle is over but says the RBA is unlikely to start raising rates until it is confident the recovery is sustainable. He is tipping two “modest” rate rises of 25 basis points in the second half of 2010. That would take the cash rate to 3.5% by the end of next year.
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
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