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Speculation grows ahead of Feb rates decision

By Staff Reporter
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An economics commentator has weighed in on whether the Reserve Bank of Australia will cut the official cash rate at its upcoming board meeting.

BetaShares chief economist and columnist David Bassanese said this week the RBA is likely to leave the official cash rate at 2.5 per cent during 2015, with a cut more likely than an increase.

Mr Bassanese said rates will remain on hold “for some time” even though the market has already priced in a 0.25 per cent cut.

“Despite further weakness in the Australian dollar, financial markets continue to speculate over a possible further cut to the official interest rate this year due to persistent soft Australian economic growth,” he said.

“The drop in oil prices and the strong gain in December employment… however, suggest the RBA is likely to remain on hold at least for the first few months of this year.”

Mr Bassanese also said housing demand remains firm, although home building approvals appear to be peaking.

“Indeed, the overall economic outlook remains subdued, suggesting unemployment might well creep higher again in coming months,” he said.

“In the least, this suggests the RBA will leave interest rates on hold with a modest bias to ease.”

Speculation has grown about what the RBA will do at its February 3 meeting, after leaving the official cash rate at its current record low since August 2013.

Westpac, NAB and ANZ recently forecast that the rate would be cut in the first half of the year, although the Commonwealth Bank said it would probably remain on hold during 2015.

The Real Estate Institute of Australia recently called on the Reserve Bank to consider a rate cut due to moderating activity in the housing market.

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