Economists are tipping the Reserve Bank of Australia wont raise the official cash rate for up to three years with many saying last Tuesday’s rate cut could be the last of the current easing cycle.
Though Macquarie Research expect an additional cut in August, they also have one of the most reserved timelines for the commencement of rate rises.
“The growth and inflation outlook suggests the RBA sees no threat of a rate hike until at least 2018,” Macquarie Research analysts said in a note to investors.
“We remain of the view that the economy is likely to evolve in a way that warrants additional monetary policy support. Rate cuts are coming, but later.”
Financial markets are pricing in a just 30 per cent chance of a rate cut over the next 12 months, the longest odds for another cut in months.
Investors and economists say an end to the easing cycle seems likely after RBA governor Glenn Stevens, in his statement explaining the bank’s decision to cut the cash rate to a record low 2 per cent, omitted a key phrase used frequently in earlier statements to signal more cuts in the futures – “further easing of policy may be appropriate over the period ahead”.
Rate cuts are good news for home owners and investors, but a prolonged spell of record low interest rates could be grim news for those who rely on returns from their bank savings, such as many among the elderly.
A survey on Friday by Bloomberg reveals most economic analysts expect the RBA to leave rates untouched until well into next year.
Economists at all four major banks, which cumulatively manage the bulk of Australia’s home loans, are predicting no rate cut or rise in the next 18 months.
ANZ senior economist Justin Fabo said he was confident there would be no rate rises for at least 18 months.
“Rates are on hold until well into 2017 when the RBA may start to raise them again,” Mr Fabo said.
“The risks are tiled towards maybe a bit of monetary easing in the next few months but we’re confident rates will be untouched for the next six.”
Economists expect the RBA to wait to see if predictions of ongoing weak wages growth and an expected pick up in consumer spending are accurate before making any further changes.
Economists at AMP Capital Investors and Merrill Lynch told Bloomberg they expected a rate rise, to 2.25 per cent, in early 2016.
Several analysts are predicting a further cut, to 1.75 per cent in August, including Capital Economics, Morgan Stanley and Macquarie Research.