Possibly one more rate cut in 2013 but lack of consensus the overriding theme: Bloomberg survey

The large variance between economists' forecasts for the cash rate between now and the end of 2014 may create a conundrum for borrowers trying to decide between fixing their home loan or going with a variable rate product, given the current cheap fixed-rate offerings in the market place.

Over the remainder of 2013, the median forecast is for the cash rate to fall to 2.75%, according to the latest Bloomberg survey of bank and financial institution economists.

However, forecasts vary from HSBC’s Paul Bloxham’s expectation that the cash rate could rise by 25 basis points to 3.25% to Macquarie’s Richard Gibbs, who expects the cash rate could fall 100 basis points to 2% over the course of the year.

Just nine economists expect a cash rate at the median of 2.75%, including Westpac’s Bill Evans and economists from JP Morgan and Citi.

A greater number, 10 economists, expect no change over 2013 and the cash rate remaining at 3%, including the Commonwealth Bank’s Michael Blythe and AMP Capital’s Shane Oliver.

Seven economists foresee two more rate cuts this year (2.5%), including ANZ’s Warren Hogan.

Looking beyond 2013, and the lack of consensus is even greater with forecasts varying from a cash rate of 2.5% (ANZ Bank and FIIG Securities) to as high as 4.25% (Laminar Capital) by the end of 2014.

The median forecast is for a cash rate of 3.25% by the end of 2014, but with only three replies at the median.

The major banks have different expectations for the cash rate by the end of 2014, though tellingly none of them expect a cash rate higher than 3%.

The Commonwealth Bank currently expects no change in the cash rate between now and the end of 2014.

NAB also has a cash rate setting of 3% by the end of 2014.

Westpac expects a cash rate of 2.75% by the end of 2014.

ANZ expects a cash rate of 2.5% by the end of 2014.

March quarter inflation data out on Wednesday (April 24) is expected to be well within the RBA’s target band of between 2% and 3%, allowing scope for further rate cuts if needed.

According to same Bloomberg survey, the median forecast is for an inflation reading of 2.4% on both trimmed mean and weighted mean measures.

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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