Economists agree no RBA rate movement this time, barring one maybe

The RBA will leave the cash rate unchanged at 4.75% when it meets on Tuesday (October 4), according to the unanimous results of a survey of 22 economists by Reuters.

However Stephen Koukoulous, economist and former adviser to the Gillard government who was not among those surveyed by Reuters, has tweeted of a “likely” RBA rate cut this week. If the RBA does not cut rates this time around, he predicts a 50-basis-points cut in November and a further 25-basis-point cut in December, taking the official cash rate down to 4%.

Among the 22 surveyed by Reuters was Westpac chief economist Bill Evans, who says the bank is not yet “despairing” about its predicted December 25-basis-point rate cut “despite there only being two more meetings before our December target date”.

“There has been considerable movement in our direction but precious few forecasters prepared to agree that rates need to come down,” Evans says.

“Unfortunately for us, the most significant member of the 'unchanged' camp is the Reserve Bank.”

Looking further into the future, there is a greater divergence of opinion on where interest rates are heading. 

Economists from Westpac, AMP, BNP Paribas and Deutsche Bank expect the cash rate to drop by 25 basis points in the first quarter of 2012 while Goldman Sachs is forecasting a 50-basis-point cut. Stockbroker ICAP expects the RBA to push up the cash rate to 5% by March 2012.

Borrowers saving to buy a home in 12 months’ time might be better off putting a bet on the Melbourne Cup than predicting which way interest rates will go, with economists’ forecasts widely divergent.

At bullish end of the spectrum is Westpac (along with Macquarie Bank), which in keeping with its prediction that rates will fall by 1% over the next 12 months is forecasting a cash rate of 3.75% by the final quarter of 2012. Most bearish is ICAP, which has a forecast rates to rise to 5.75% over this time frame.

Ten economists are forecasting the cash rate to rise above the current 4.75% by the end of 2012, six believe the cash rate will fall below the current 4.75% setting and five (including ANZ) expect it to remain unchanged.