The cash rate is expected to remain on hold well into the year as weak employment figures continue to offset the strengthening property market.
A weak labour market continues to plague the Australian economy, with unemployment set to rise to 6.25 per cent in 2014, according to the federal government’s Mid-Year Economic and Fiscal Outlook.
AMP chief economist Shane Oliver said employment is a lagging indicator, with the December figures reflecting the soft economic conditions and bleak outlook seen around the middle of last year.
“With more forward-looking economic indicators showing signs of improvement, for example housing approvals, retail sales and consumer and business confidence, jobs growth should start to improve by around mid-year,” he said.
Citing the recent fall in the value of the Australian dollar and increasing signs that the economy is now responding well to current policy, Mr Oliver predicted the cash rate would remain steady at least until September.
“We have seen housing pick up quite solidly, retail sales figures are now looking pretty good, and while confidence levels are not fantastic, they are now off their lows,” he said.
“All of those things suggest the Reserve Bank will leave rates on hold when they meet in February, and probably keep rates on hold for many months to come.”
However, chief economist at NAB Alan Oster believes the next rate cut may be closer than half a year away.
“We changed our prediction for a cut from February 2014 to June 2014 back in October last year; we’re staying with June because we’re sure it’ll take the RBA a while to convince themselves to do something,” he said.
“The RBA kept sending signals that they are comfortable where they are, and that they’re going to wait to see what’s happening.
“I think the issue is still non-mining investment and whether it comes back – and I think that will take a little bit of time – but we’re seeing retail numbers get some traction so it may be sooner than expected.”
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