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Category: Money and Monetary Policy / Economic Trends

Interest rates widely expected to stay on hold

Tuesday, 2 Feb 2016 06:36:53 | Justine Parker

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Analysts are tipping the Reserve Bank will again leave interest rates on hold at its first board meeting of the year.

Most economists expect the Reserve Bank to leave the cash rate at the historic low of 2 per cent today.

It would be the eighth consecutive meeting on hold, after the RBA's last 25-basis-point cut in May.

They cite a run of surprisingly strong employment growth and signs the lower Australian dollar is helping some sectors, such as services.

While the domestic economy appears to be seeing moderate growth, it is not yet clear how recent volatility on global markets and slowing growth in China will play out.

Nomura strategist Andrew Ticehurst said, for now at least, the economy does not need more help from a lower cash rate.

"The global economic backdrop looks a little weaker and financial market volatility has increased, but against that, most of the domestic activity data continues to suggest that the economy's growing at a moderate pace and that the economy at this point does not require additional assistance from a lower cash rate," he said.

"2016 is off to a bit of a wobbly start, so there's plenty to watch out for."

The economist said easing by other central banks overseas could force the Reserve Bank to cut interest rates mid-way through this year, with the possibility that the Australian dollar may be pushed higher as other currencies fall.

Mr Ticehurst said moves, such as Japan's decision on Friday to cut key deposit interest rates below zero, mean the RBA could face pressure to act later in the year.

"There's some pressures starting to build pointing towards the need for a lower cash rate from all three things: weaker global growth, deterioration of market conditions and this move from Japan," he explained.

Mr Ticehurst expects the RBA will cut interest rates in May.

However, he is in the minority with that view - 55 per cent of economists surveyed by financial product comparison website Finder expect no further cuts this year.

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