Interest rates may turn up
But looking further ahead, some economists are predicting the RBA could begin to lift interest rates as early as October.
HSBC chief economist Paul Bloxham said optimism about China's future growth and recent improvements to the labour market meant the need for easing was over.
"Clearly, the market still believes cuts are more likely than hikes but, in our view, much of this reflects downside global risks, rather than local developments," he said.
"Consumer sentiment and the housing market are improving in large part due to low interest rates. The next move may be up, and we have pencilled in the next hike for Q4 this year."
Credit Suisse data suggests the official cash rate will stay on hold at 3 per cent, with the market giving an 8 per cent chance of a downward move of 25 basis points.
Citi economists Josh Williamson and Paul Brennan said the main development since the last RBA meeting was the escalation of the crisis in Cyprus, which was unlikely to influence domestic policy. "The global backdrop doesn't present a case for further near-term policy easing," they said. "Inflation outlook still leaves the door open to one more interest rate cut, but the window is closing."
The TD Securities Melbourne Institute monthly inflation gauge increased by just 0.2 per cent in March, for a 2.1 per cent annual pace, following a flat monthly result in February. It is the lowest annual inflation outcome in eight months, raising expectations of another interest rate cut before the end of the financial year.
ABS job vacancy data was also week, falling 10.1 per cent over the three months to February. Although a sharp decline, ANZ economists said the fall represented some "catch-up".
Frequently Asked Questions about this Article…
Most economists quoted in the article think a rate change at the next RBA meeting is unlikely. Credit Suisse data suggests the official cash rate will stay on hold at 3%, and market pricing gives only an 8% chance of a 25-basis-point cut at that meeting.
Some economists are predicting the RBA could begin to lift interest rates as early as October or in Q4. HSBC’s chief economist Paul Bloxham said improved consumer sentiment, a stronger housing market and better labour-market signals mean the next move may be up.
The article notes markets still generally believe cuts are more likely than hikes, reflecting downside global risks. However, several economists say local developments—like improved labour-market indicators and optimism about China—are closing the window for further easing.
The TD Securities Melbourne Institute monthly inflation gauge rose 0.2% in March for a 2.1% annual pace—the lowest annual outcome in eight months. That softer inflation reading has raised expectations of another interest-rate cut before the end of the financial year, even as other forecasters see the case for pausing.
Labour-market signals are mixed. While HSBC pointed to recent improvements in the labour market as a reason to move away from easing, ABS job vacancy data was weak—falling 10.1% over the three months to February—so policymakers will weigh both the positive and weak indicators.
Citi economists Josh Williamson and Paul Brennan said the escalation of the crisis in Cyprus was unlikely to influence domestic RBA policy. They argued the global backdrop doesn’t present a strong case for further near-term policy easing in Australia.
Yes — some economists say the inflation outlook still leaves the door open to one more cut, but they also warn that the window for that cut is closing. Market pricing and mixed economic data mean a cut is possible but far from certain.
Everyday investors should monitor RBA statements and meeting outcomes, monthly inflation gauges (like the TD Securities Melbourne Institute measure), ABS labour and job-vacancy data, and how markets price the official cash rate. Also watch commentary from major economists and banks, since their views (for example from HSBC, Citi and Credit Suisse) help shape expectations.
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