RBA expected to leave official cash rate on hold: but what will 2015 bring?

Tuesday 02 December 2014

Article by Mozo

The official cash rate is expected to remain on hold at 2.50% when the Reserve Bank of Australia make their announcement after the December board meeting this afternoon.

RBA cash rate 2015

If predictions are correct, it will be the 16th consecutive month rates have been on hold, with the rate left untouched since August 2013.

Despite the stagnancy, most experts expect the rate to change in early 2015. However, there are differing opinions as to exactly what that change will be.

News Corp has referenced an AAP survey that found the exact opposite, with 10 out of 13 traders predicting a rise in the official cash rate next year, seven of whom think the cash rate will hit at least 3.00%.

However, Bloomberg reported that 64% of surveyed traders expect the rate to drop by a quarter of a percentage point (to 2.25%) over the next 12 months.

Mozo monetary policy expert Peter Marshall agreed.

“If the economic indicators are all negative, and inflation remains at the bottom of the RBA target band, there is no case for a rate increase,” he said.

“Housing remains a problem, but the RBA isn't likely to rely on rates to cool house price increases which are only a big problem in Sydney, and Melbourne to a lesser extent. Housing is likely to be addressed by macro-prudential changes of some sort by APRA, leaving the RBA free to hit the interest rate lever in an attempt to lift the economy.

“There won't be a change today, but in the first few months of next year a cut or two seems likely.”

It remains to be seen whether RBA Governor Glenn Stevens will provide any hints about the cash rate’s future when he releases his statement at 2:30pm today.

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