RBA to keep rates on hold but jawboning possible

Some economists now expect RBA governor Glenn Stevens to include jawboning language in the statement in a bid to lower the Australian dollar. Photo: Ben Rushton The Australian dollar has climbed 6.2 per cent this month.
Nanjing Night Net

Economists expect the Reserve Bank of Australia to keep interest rates on hold this week, but some are still expecting a rate cut on federal budget day in May if rates stay on hold in the United States.

A Fairfax Media survey of 12 senior bank and market economists found they were unanimous that the central bank will keep the official cash rate at a record low 2 per cent at its policy decision this week.

But about a quarter of economists still anticipate a 25-basis-point cut as early as May.

At the heart of this call is the strength in the Australian dollar, which has risen 12 per cent off its six-year low of US68¢ in January to as high as US77¢ last week.

Its strength has come from improving commodity prices, better-than-expected local data and a lowering outlook for interest rate rises in the US.

The market has all but ruled out the Federal Reserve raising rates at its April meeting, and some economists are tipping the dollar to continue to rise as high as US80¢. Budget day bolter?

That would put pressure on the RBA on the day when the federal government delivers its budget, which was brought forward a week.

Nomura rate strategist Andrew Ticehurst says a May cut is also likely because the labour force data had been “overstated” and had weakened in the first months of the year, weakness in the economies of its trading partners China, Japan and Korea, and a low quarterly inflation reading.

“In terms of the May call, I would say it’s becoming very close, and it would likely take a very low CPI [consumer price index] release on April 27 to get the Reserve Bank across the line as soon as May,” he said.

AMP Capital chief economist Shane Oliver is also among those tipping a May cut.

“The main reasons are that mining investment continues to unwind, the contribution to growth from housing looks like it will slow over the year ahead, the RBA will likely need to offset further out-of-cycle bank interest rate hikes, inflation is likely to remain low and in order to help push the Australian dollar back down,” he said. Cuts are done

Others are tipping no cuts at all this year. ANZ Banking Group last month became the last of the big four banks to rule out any cuts this year. The bank’s head of Australian economics Felicity Emmett said the previous call, for cuts in May and August, were based on global economic concerns that have since eased.

“I think the lift in commodity prices since the lows earlier this year are indicative of that repricing of global risks,” Ms Emmett said.

“It’s the trajectory of the unemployment that is going to be a key driver for policy … while we’ve taken our rate cuts out of our forecast, we continue to see the risk tilted [towards a cut],” she said. This story Administrator ready to work first appeared on Nanjing Night Net.

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