Despite the recent spate of positive economic data, some brokers are still hopeful that the Reserve Bank will leave rates unchanged tomorrow.
Last week the construction and capital expenditure data supported estimates that gross domestic product expanded by at least 0.5 per cent in the last three months of 2009, with markets suggesting GDP grew by as much as 0.9 per cent to reach an annual rate of 2.4 per cent.
But the improving growth outlook has failed to dispel uncertainty about the likelihood of an official cash rate rise, with brokers estimating the odds of a move as virtually even.
According to The Adviser’s latest weekly straw poll, 53.1 per cent of brokers expect the Reserve Bank to lift rates in March.
Of the 458 respondents, 42.8 per cent said they did not expect to see a rate increase, while the remaining 4.1 per cent said they were unsure.
Homeloans Etc mortgage planner Ruan Burger said he wouldn’t be surprised to see the Reserve Bank lift the official cash rate by 25 basis points on Tuesday.
“Based on most of the economic indicators, I think it is likely that rates will increase, especially after the Reserve Bank decided to keep them on hold last month,” Mr Burger told The Adviser.
But the outcome of tomorrow’s board meeting aside, Mr Burger said the official cash rate will definitely increase over the coming months and as such, brokers need to adequately prepare their clients.
“I service all my clients as though rates are 7.5 per cent. That way, if they can afford the repayments at this level, then any increases to the official cash rate over the coming months will not affect them or their monthly repayments,” he said.
Property Planning Australia’s Damian Roylance told The Adviser he took a similar tactic with his clients.
“When working my client’s repayments, I like to make sure they would be able to cope if interest rates were to climb suddenly,” Mr Roylance said.
“That said, I don’t think we will see rates rise tomorrow. My thought is that the Reserve Bank will keep the official cash rate on hold for one more month.”
John Flavell, general manager of NAB Broker, said he remained”50-50” on rates.
“I think at the moment, the likelihood of a rate increase is an even bet, it really could swing either way,” he told The Adviser.
“However, if you look longer term, the feedback we are receiving from all the leading economic indicators is that interest rates will rise by as much as 1 per cent over the coming 12 months.”
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