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Economists divided over rates

By Steven Cross
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Economists are divided as to whether or not the Reserve Bank will cut the official cash rate tomorrow.

Earlier this week, HSBC chief economist Paul Bloxham said he expected to see the Reserve Bank leave the cash rate on hold, as new data showed the nation’s capital expenditure fell by less than expected.

“Mining investment is set to plateau as a share of the economy, not plummet, and non-mining investment is set to rise next year. So, we expect the RBA to be on hold next week,” he said.

But while Mr Bloxham expects rates to stay on hold, it seems not everyone is sure.

AMP’s chief economist Shane Oliver said he expects to see the cash rate drop to the historic low of 2.5 per cent at the June Board meeting.

“I must say though it’s another close call, as the RBA may decide that having cut in May and with the fall in the Australian dollar it will wait and assess for now,” he said.

Last week, Grant Simpson spoke with Smart Property Investment about the possible repurcussions for investors if the cash rate is cut any further.

Mr Oliver believes the low levels of inflation give the RBA enough room to move.

“Against this though, the Australian dollar hasn't really fallen enough to provide a big stimulus to the economy, the latest business investment readings confirm that mining investment has peaked and that non-mining investment is likely to remain weak, readings for business and consumer confidence have been poor, forward looking jobs indicators are soft and the toughish Budget and Ford's decision to quit manufacturing seem to have added to the sense of gloom surrounding the Australian economy.

“As a result, with low inflation providing plenty of scope to ease the RBA should act again on its easing bias and on balance we think that it will.”

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