Next rate movement will be up: experts

By Vivienne Kelly
Reserve Bank of Australia

Despite continuing speculation that the Reserve Bank could cut rates again later this year, most commentators believe the cash rate is set to rise.

In response to’s Reserve Bank Survey, 22 experts and commentators predicted rates would rise in 2016 or beyond. Of these, eight predicted the next rate movement would be in the fourth quarter of 2016 – with Mark Crosby from the University of Melbourne saying the case for another rate cut is not strong enough at this point.

“The Reserve Bank has been aggressive in cutting rates in recent months, but they are now running up against too hot a housing market and it is time to consider raising rates as the Fed moves to raise in Q4 [2015] or Q1 2016,” Mr Crosby said.

Six of the 22 experts believe the rise will come a little earlier, in the third quarter of 2015. In addition, three experts predict the rise will come in the first three months of 2016 and two said it will be in the second quarter.

Chris Caton from BT Financial Group predicted the next movement will be a rate rise in the first quarter of 2016, but said the economy is still in a state of flux and this may change.

“The Reserve Bank is now a reluctant cutter,” Dr Caton said. “It may still cut again, but it will wait to see what’s happening to growth, unemployment and investor behaviour in residential property.”

Not all experts on the panel agreed with these forecasts, though – with a further 10 experts believing the Reserve Bank still has room to cut. Six of the panellists suggested a rate cut as soon as Q3 2015 (July, August or September) and four believe it will come at the tail-end of the year.

Mark Brimble from Griffith University said there were several factors that could encourage the Reserve Bank to cut rates again this year.

“It will wait to see how the markets and participants respond to [the rate cut in May],” Mr Brimble said.

“Continued uncertainty in the global market, as well as weak domestic indicators, will continue a downward bias. Notably, the weakness in China and expected falls in minerals and energy will also keep inflation below the Reserve Bank’s target band.”

All of’s survey participants correctly predicted that the Reserve Bank would keep the cash rate on hold at 2.00 per cent in June.

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