Economists say the RBA should not raise rates, but five think it will

Ahead of the RBA’s June 7 meeting, economists says the case for an increase has not been made – but an increase is nevertheless likely in the coming months.

A Bloomberg survey of 28 economists found that just five expect rates to increase in June.

The cash rate has remained unchanged since November 2010, when the RBA lifted rates by 25bps to the current level of 4.75%.

HIA chief economist Harley Dale told Property Observer on June 1, following the release of March quarter GDP figures showing a 1.2% contraction in the economy, that he expected rates would nonetheless increase in the next few months.

However, this did not mean they should.

Dale says the presumption that a clinical, narrow focus on hiking interest rates is the right course of action is inappropriate in the post-GFC environment.

"Australia’s economic growth reflects a range of sectoral pulse rates at present, and the idea that Australia will somehow fall in a ditch if short-term action is not taken by the RBA to address potential pressures in one sector is nonsense," Dale says.

"The weather-distorted March quarter is well behind us, but partial indicators for the June quarter are so far weighted towards negative updates," Dale adds.

Westpac economist Bill Evans says the fall in GDP in the March quarter, the weakest since March 1991, along with the weaker data flow (an upswing in domestic demand of 1.3% for the March quarter offset by the savings rate rising from 9.5 to 11.7%), will make it very difficult for the RBA, “from a public relations perspective, to push up rates in June”.

ANZ economists Julie Toth, Riki Polygenis and Andrew McManus expect an interest rate rise in either July or August.

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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