Economists agree RBA easing cycle may be over but increases to the cash rate not imminent

Alistair WalshDecember 7, 2020

Australian economists mostly agree that the Reserve Bank of Australia’s decision to leave the cash rate on hold at 3% yesterday likely signifies the end of any further rate cuts this year.

They tend to agree too that while the easing phase has come to an end, any cash rate increases are unlikely to happen again soon.

Commsec’s Craig James says, “With home prices and share prices lifting and global risks dissipating, the Reserve Bank would also be loath to keep super low interest rates in place too long”.

But he adds it’s too early for the RBA to be flagging potential rate hikes either later this year or early next year.

He says the easing bias is still appropriate both to highlight the risks that still exist in the global economy and to sustain momentum in the domestic economy.

Commsec expects the RBA will keep rates unchanged for the next six months and says there is a very small chance it will cut the rate again but this is becoming increasingly unlikely.

“If the Reserve Bank was to cut rates in the next few months it would likely be prompted by fresh global turmoil, especially combined with evidence of weaker US and Chinese growth, low domestic inflation and a high Australian dollar,” James says.

“An interest rate hike would only be contemplated if there were solid evidence of stronger US and Chinese economic growth, firmer domestic growth, greater confidence of a lift in investment outside the mining sector and greater upside risks for Australian inflation.”

HSBC chief economist Paul Bloxham described yesterday's rate-hold as “tactically dovish”.

He says given the high Australian dollar, it’s prudent for the RBA to be dovish, but that it doesn’t necessarily mean it will follow through with further cuts.

“With demand already picking up in the interest-rate sensitive sectors of the economy, we remain of the view that the easing phase is done,” Bloxham said

He offered no prediction of how long until the next cash rate increase.

ANZ said the easing bias is increasingly tactical with it increasingly unlikely that they will cut rates again.

ANZ expects the RBA will maintain its bias towards further easing if the non-mining economy does not pick more strongly but it probably won’t cut rates further.

“While we still view a rate cut mid-year as a distinct possibility, in part because this will follow the next read on businesses’ capital expenditure intentions, the chances of a cut occurring appear to have diminished. Nevertheless, we see little risk of a rate rise this year as some are predicting.”


Alistair Walsh

Deutsche Welle online reporter

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