Economy

What will happen to interest rates tomorrow

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The Reserve Bank will meet again on Tuesday to decide the fate of the official cash rate, and the predictions are rolling in.

Property Observer has compiled some of the predictions that are being shared by major institutions. Although it appears no one is expecting a change at the upcoming meeting, the point of contention remains the timing of when the next increase will occur.

While nearing the end of 2013, many were split over whether interest rates would fall further, now it seems most are looking to rises.

In March, it was reported that some economists were expecting interest rates to hit 4.25% by the end of 2015, with some expecting a smaller increase to be more likely.

HSBC Global Research chief economist Australia and New Zealand – Paul Bloxham

  • NO CHANGE EXPECTED
  • NEXT UPWARDS MOVEMENT MAY BE BEFORE END OF 2014

“We expect the RBA to remain on hold next week, at 2.50%. With momentum having slowed a bit, we expect the RBA to repeat that it sees rates as likely to be on hold for ‘some time’.

“We still expect the next move to be up, although our view that this occurs before year-end 2014 relies on a further lift in local employment and a pick-up in China.”

ANZ Research’s Morning Note

  • NO CHANGE EXPECTED

“Yesterday in Australia, firms’ second estimate for 2014-15 capital expenditure intentions were stronger than market expectations, with non-mining investment expectations upgraded modestly.

“Nonetheless, these data continue to point to only a gradual upswing in non-mining business investment in 2014-15, which supports our view that the RBA is likely to remain on hold for an extended period of time.

“After adjusting for the typical bias in firms’ investment intentions, the survey suggests that total capital expenditure is likely to fall by 5.8% y/y in 2014-15 in year average terms. Actual capital expenditure in Q1 was weaker-than-expected at -4.2% q/q (mkt: -1.5% q/q; ANZ: -0.5% q/q).”

ME Bank general manager markets John Caelli

  • NO CHANGE EXPECTED
  • NEXT UPWARDS MOVEMENT IN Q1 2015

“We don’t expect the RBA to change rates in June. Inflation is within the target zone so the RBA can afford to wait and see the recovery unfold, noting economic growth continues to be below average, the transition to non-mining economic activity has further to go, and there will be some fiscal contraction from the budget.

“We don’t see rates increasing until at least the first quarter of 2015.”

Commsec economist Savanth Sebastian

  • NO CHANGE EXPECTED

“On Tuesday the Reserve Bank Board hands down its latest monetary policy decision. Since the last rate decision there is unlikely be any significant angst about how the economic recovery is panning out.

“Activity levels have been healthy and the Aussie dollar has barely budged, holding around US92-93c. It will be interestingly to see if there is any discussion by Board members on the ongoing negativity surrounding the Federal Budget and the resulting sharp pullback in consumer confidence.

:We expect the Reserve Bank to stay on the interest rate sidelines and attempt to gauge how the economy tracks over coming months.”

In March, Smartline Personal Mortgage Advisors’ Joe Sirianni said that they do not expect an increase until February 2015.

“Even if rates do rise in early 2015, predictions are that this will be only a 0.25% increase, which will still mean rates will be at some of the lowest levels ever seen,” said Sirianni.

In February, the majority of those questioned by Property Observer in this exclusive about rates, said that the next movement is likely to be the end of 2014. Whether it will be this year or next, time will tell.

This article first appeared on Property Observer.

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