Interest rates: what the economists say
Westpac chief economist Bill Evans
In May last year, we forecast that the cash rate would bottom out at 2.75 per cent some time near the end of 2012 or the beginning of 2013. Today's statement has given us encouragement that this last leg in the cycle is likely in the near term and we maintain our call that another cut can be expected in March.
UBS senior economist George Tharenou
For now, there are tentative signs of improvement in the non-mining economy — confidence and housing in particular. If they continue, this should allow the RBA to stay on hold from here, and possibly for an extended period.
CBA chief economist Michael Blythe
The implication is that any stumble in the non-mining economy will be accompanied by a further interest rate nudge. Low inflation is a necessary condition in allowing the current policy approach to work. RBA inflation commentary is a little less explicit than usual. But the expectation is that slower growth in labour costs and rising productivity will keep inflation low as the benefit of falling import prices ends. These are strong assumptions and are yet to be confirmed by the data.
Citi senior economist Joshua Williamson
The Reserve Bank is taking a glass-half-full view of the economy — that we will see a productivity improvement, that we will see the international economy lift Australia somewhat, and that the domestic economy will respond to that. But I think the risks are to the downside there that we don't see this response.
Barclays chief economist Kieran Davies
Though they've got an easing bias, they would need quite a lot of convincing to act because they think the rate cuts they've done [so far] are substantial. Things could still go wrong overseas, but at this stage with the world backdrop being better and with those initial signs of earlier rate cuts working, I'd say that the bank would be pretty happy if they could keep things where they are.
Frequently Asked Questions about this Article…
Economists in the article offer mixed views. Westpac’s Bill Evans expects another cash rate cut in March and had forecast the cash rate would bottom near 2.75% around late 2012/early 2013. UBS’s George Tharenou and Barclays’ Kieran Davies see tentative signs that could allow the RBA to stay on hold, while CBA’s Michael Blythe warns a stumble in the non‑mining economy could prompt further easing. Citi’s Joshua Williamson cautions the Reserve Bank’s optimism carries downside risks if expected improvements don’t materialise.
Yes. Westpac chief economist Bill Evans stated that in May last year they forecast the cash rate would bottom out at 2.75% sometime near the end of 2012 or the beginning of 2013, and he maintained a call for another cut in March.
UBS senior economist George Tharenou pointed to tentative signs of improvement in the non‑mining economy—especially confidence and housing—which, if sustained, could allow the RBA to remain on hold for an extended period. Conversely, CBA’s Michael Blythe said any stumble in the non‑mining economy would likely be accompanied by further interest‑rate easing.
CBA’s Michael Blythe highlighted that low inflation is a necessary condition for the current policy approach to work. He noted the RBA’s inflation commentary was less explicit than usual, and that the expectation depends on slower labour‑cost growth and rising productivity keeping inflation low—assumptions not yet confirmed by data.
Views differ. Barclays’ Kieran Davies and UBS’ George Tharenou suggest the RBA could be comfortable keeping rates where they are given early signs of improvement and the global backdrop. But Westpac expects another cut, and CBA warns the bank would act again if the non‑mining economy falters—so confidence is cautious rather than unanimous.
Citi senior economist Joshua Williamson warned the RBA’s ‘glass‑half‑full’ view relies on productivity improvements and an international economic lift. He said the risks are to the downside if the expected domestic response and global support don’t occur.
Based on the economists cited, investors should watch non‑mining activity (especially housing and business confidence), inflation trends, labour‑cost growth and productivity data, and the international economic backdrop. These are the factors commentators say will influence whether the RBA stays on hold or moves again.
Treat the commentary as a range of plausible scenarios: some economists expect further cuts (for example Westpac), others see reasons for the RBA to pause (UBS, Barclays), while warnings remain about downside risks (Citi, CBA). Keep an eye on the key indicators they mention—non‑mining activity, housing, inflation and productivity—and be prepared for policy to change if incoming data contradicts current expectations.
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