April 07, 2011 – Economists say borrowers’ luck of being spared an interest rate rise on Tuesday will soon change.
The Reserve Bank of Australia (RBA) would maintain the cash rate on hold when its board meets next week according to all 13 economists surveyed by AAP.
However, the first hike would occur either in the second or third quarter of the year as predicted by 11 of the economists.
The median of the survey showed that the cash rate was expected to be at 5.25 percent by the end of 2011.
In an anticipatory move against inflation in the midst of the threat of increasing commodity prices and a tightening labor market, the RBA increased the cash rate to 4.75 percent last November 2010.
Spiros Papadopoulos, National Australia Bank (NAB) senior economist, stated that the central bank might tighten policy soon prompted by the high demand for Australian commodities due to global economic strength. This move would noticeably drive a lot of investment growth in the mining and resources sector and will domestically help preserve and even tighten the labor market even further.
Spiros also says that this move might push the unemployment rate down to 4.5 percent by the end of the year, which is well below the five percent level which several economists see as the point at which wage inflation will begin to speed up.
However, Mr. Papadopoulos said, for the moment, global economic uncertainty and continued reluctance from householders to spend could see the RBA forced to hold the cash rate balanced in the near term.
Due to the earthquake crisis in Japan and elevated oil prices, JP Morgan was forced to move its forecasts for the first cash rate hike of the year from May to August according to Ben Jarman, a JP Morgan economist.
Meanwhile, Stephen Roberts, Nomura chief economist, expected that a more pre-emptive approach to monetary policy will be undertaken by the central bank over the year.
He anticipates a 25 basis point rise in May and another hike in August. This would take the cash rate to 5.25 per cent by the end of the year and into 2012.
