Interest rates tipped to remain unchanged for seventh-straight meeting
Australian borrowers are likely to be spared an interest rate rise when the Reserve Bank meets in July.
But while many expect the hike could come as soon as August, some money market traders believe the next move could be a cut with bond markets pricing in a full 25 percentage point cut by early next year, which would take the cash rate to 4.5%.
All 10 economists surveyed by AAP said the RBA would keep the cash rate at 4.75% for July.
Six of the 10 say the cash rate will be raised to 5.0% in the September quarter, and all believe there will be a rise before the end of 2011 given Australia's mining investment boom is expected to lift economic growth to 4% during the 2011/12 financial year, with higher inflation kicking in.
A survey of 22 economists by Reuters found that all 22 expect the official cash rate to remain unchanged at 4.75% for the seventh month in row.
However, the majority (17 out of 22) expect a 25 basis point interest rate rise in the third quarter of the year and one in two expect another 25 basis point rate rise in the fourth quarter of the year, taking the official rate to 5.25%.
Westpac, Citibank and St. George economists are among the minority of economists who don’t expect a rate rise in 2011.
HSBC chief economist Paul Bloxham forecasts the next rise will be in August.
He expects the Australian Bureau of Statistics on July 27 to announce an elevated inflation reading for the June quarter.
Mr Bloxham has likened the endless interest rate speculation to Samuel Beckett's play, Waiting for Godot.
''Much like Beckett's protagonists who spend the whole play waiting for the arrival of a character named Godot, we continue to wait for an RBA hike,'' Mr Bloxham told the SMH.
Godot never does arrive in the absurdist play, and Bloxham says the bond markets are taking a similar view on whether the RBA will follow through on its tough rhetoric with action.
"Although recent weaker domestic indicators – particularly softer employment growth and business conditions – provide some risk to this timeframe," Mr Bloxham says.
"Nonetheless, we think hikes will be forthcoming and give little credence to the argument that the next move is down.
"The mining investment boom is a massive multi-year story and to stop it there would have to be a significant rout in iron ore and coal prices, which seems unlikely, given continued Chinese demand," Mr Bloxham says.
Deutsche Bank's fixed income strategist, David Plank, stresses that market pricing should not always be taken literally, because bond traders are weighing up the likelihood of two very different scenarios.
''It's not unusual for the market to diverge quite a bit from the RBA's central view,'' Mr Plank says.
