TWEET TALK: Hold the line
Most economists expect the Reserve Bank to keep rates unchanged today, but there's division on where the bank will go from there.
Economists are widely predicting the Reserve Bank of Australia will keep interest rates on hold when it meets at 1430 AEDT today, with all but one of 15 economists surveyed by AAP expecting no change.
That view is reflected in the Twittersphere this morning, with commentators citing improvement in local and global markets as key to a cash rate hold.
At its December meeting, the bank cut the official cash rate by 25 basis points to 3 per cent, equal to the all-time low reached during the depths of the global financial crisis in 2009. A decision to cut today would bring the cash rate to the lowest level in the bank's history.
Though recent domestic data has been weak, a strengthening of global markets is the main reason commentators are predicting rates will remain steady.
Head of investment strategy and chief economist at AMP Capital Shane Oliver (@ShaneOliverAMP) said yesterday’s data on falling building applications and job ads wasn’t weak enough to warrant a rate change.
"good global news strong share mkt surge (=boost to wealth & conf) signs of pick up in conf & housing likely to see RBA on hold tomorrow,” he tweeted.
Treasury dealer at the Arab Bank of Australia David Scutt (@David_Scutt) also tweeted that domestic data, though "unilaterally weak”, was outweighed by improvements in the global economy.
"It was a close call for the #rba to ease in December & the global outlook has improved since then. No change, neutral bias.”
Meanwhile, optionsXpress market analyst Ben Le Brun (@benlebrun) went so far as to suggest a likely hold is signalling the end of a series of cuts: "I think they'll hold fire. Too many improvements in economy at home & abroad to warrant a cut. We may have seen the last cut.”
This echoes today’s Business Spectator column from Market Economics managing director Stephen Koukoulas (@TheKouk) in which he argued a cut "will not be seriously considered” (The RBA’s timely market salvation, February 5). Koukoulas said additional rate cuts may be on the cards in following months, but the board may also consider longer-term issues such as whether "the more positive economic news unfolding will require interest rates to edge higher sometime down the track.”
He tweeted: "I note the prior cuts are working perfectly: AUD stopped rising, confidence up, disinflation pressures arrested. But no change.”
Others are not so sure we'll be seeing an end to the recent cycle of cuts in the near term.
Eureka Report investment strategist Adam Carr (@AdamCarrEcon) tweeted that "All of the reasons the board nominated to cut last year have come to nothing, so i would expect them to hold rates steady” and therefore a hold is likely. But "On their past track record I don't think it would take much for them to cut again...”
University of Western Sydney Associate Professor of Economics & Finance Steve Keen (@ProfSteveKeen) also said there are more cuts to come.
"They'll hold rates now but continuing deflationary trends will force their hand at more rate cuts over 2013."