RBA announces official cash rate call

The RBA met industry expectations today, announcing its decision to hold the official interest rate at the record low of 1.5 per cent for July. The cash rate last moved in August 2016, shifting down to the current rate.

All 34 experts on the finder.com.au panel correctly predicted a ‘hold’ verdict, but of those, 88 per cent predict the next cash rate move will be an increase. Of the 440 brokers surveyed by HashChing, 88.29 per cent also correctly predicted a hold verdict.

AMP Capital’s Shane Oliver said: “While downside risks to the growth and inflation outlook have increased, the RBA remains upbeat that growth will pick up particularly after recent solid jobs data. It probably also remains wary as to whether the Sydney and Melbourne property markets have really started to cool or not.”

Paul Dales of Capital Economics predicted the rate would hold and that a rate hike was not in the near future: “While the recent improvement in the labour market has quashed talk of further rate cuts, weak underlying inflation will prevent the RBA from hiking rates until 2019.”

CoreLogic head of research, Tim Lawless anticipated a hold verdict, pointing to upbeat labour market reports and a falling unemployment rate: “A steady cash rate from the RBA against increasingly hawkish sentiments in Europe and the US stands to put downward pressure on the Australian dollar.”

The housing market is “showing signs” of a slowdown, Mr Lawless said, but added that he expects mortgage rates to continue to rise despite the steady cash rate. “Slower housing market conditions and improvements in employment markets are certainly positive outcomes, however if wages growth and inflation remain subdued we can expect the cash rate to remain on hold over the short term.”

Nicholas Gruen of Lateral Economics, and Saul Eslake and Steven Milch of Suncorp Group predicted two or more rate rises in 2018, falling in line with ex-RBA member John Edwards’ recent assertion that the RBA will hike rates eight times in the next two years.

Ex-RBA member John Edwards last week predicted a series of eight rate hikes over 2018 and 2019, bringing the official cash rate to 3.5 per cent, however Stephen Koukoulas of Market Economics has predicted the opposite, suggesting the rate in June 2018 could be sitting at 0.75 per cent.

Mr Koukoulas predicted a hold verdict for July but suspected a rate cut could be in the pipeline for September or October this year. He pointed to a “tapering” housing market and subdued consumer spending as contributing factors.

The brokers at HashChing were also dubious about Mr Edwards’ claim, with 78.16 per cent of those surveyed disagreeing with his theory of eight rate hikes in two years.