Home price rise fears mean no rate cut
THE Reserve Bank is unlikely to cut rates when it meets tomorrow as it tries to balance the need to boost economic growth while keeping house prices under control.
Financial markets are pricing in only a 6 per cent chance of the official cash rate being cut to 1.75 per cent, according to the ASX rate tracker.
CommSec chief economist Craig James says most economists feel the cash rate will remain unchanged at a record low of 2 per cent after the RBA’s monthly board meeting tomorrow.
“We had a rate cut in February and also May and the Reserve Bank gave no forward guidance in terms of future interest rate moves, so most people think interest rates are on hold now for a while,” Mr James said. “What we’re really looking at, rather than an interest rate change, is whether there is a change in terms of the guidance.”
HSBC chief economist Paul Bloxham said the central bank board would have a “tricky trade-off” when they met.
“Low interest rates are needed to support the rebalancing of growth towards the non-mining sectors and encourage the Australian dollar to fall,” Mr Bloxham said.
“At the same time, low rates are also stoking a housing price boom in some cities, particularly Sydney.”
His comments come after last Thursday’s official business investment figures showed a fall of 4.4 per cent in the March quarter, worse than economists’ forecasts.
The disappointing numbers were largely driven by a drop off in mining investment, but also revealed a sharp deterioration in the outlook for nonmining investment.
The benchmark ASX200 index closed up 1.12 per cent at 5777.2 points on Friday.
Mr James said continued speculation about whether Greece was close to a deal with its creditors would continue to weigh on the market. “It’s probably one real reason why the US and European markets fell on Friday,” Mr James said.
Domestically, economists will focus on the gross domestic product figures for the March quarter due out Wednesday.