While the majority of industry expect today’s RBA meeting to result in the cash rate being held at its record low level of 1.5 per cent, a growing number expect the next cash rate move to be a cut rather than a hike.
According to a survey of 28 industry pundits by rate comparison website Finder.com.au, 60 per cent of respondents expect the next cash rate move from the Reserve Bank of Australia to be a cut.
Finder noted that over the past two years, an average of 80 per cent of its surveyed pundits have predicted the next cash rate move to be hike, signalling a reversal in market sentiment.
“[The RBA] will acknowledge the economy is weaker than when it last met and will signal a change in bias towards an easing,” he said.
“It may wait a month or two before acting on that bias.”
Graham Cooke, insights manager at Finder, said he was surprised by the results, but noted that while most pundits agree that the next cash rate move would be down, there is no consensus about the timing of the cut.
“This is the most dramatic shift I have seen in four years of running our cash rate survey,” he said.
“Economists are now swinging significantly in favour of a cut this year, but nobody can agree on exactly when this will happen.”
Mr Cooke said that the shift in sentiment was triggered by the “severity” of the housing downturn in recent months.
The latest CoreLogic Hedonic Home Price Index reported that national dwelling values dropped by 5.6 per cent in the year to 31 January 2019, driven by a 6.9 per cent fall across Australia’s combined capital cities.
“Along with housing concerns, inflation is still sitting below 2 per cent, so another cut may be needed to stimulate the economy,” Mr Cooke added.
“The only issue with further cuts is that it reduces the ability of the RBA to adapt to softer economic conditions in the future.”
Meanwhile, Canstar’s group executive of financial services, Steve Mickenbecker, commented: “The RBA won’t be moving rates this February, but that doesn’t mean that the central bank lacks relevance. The context of the RBA decision and RBA’s expectations for the economy will be one reference point to inform politicians on how they should proceed.
“There is a decision to make. Australia is facing a tough implementation or a soft touch, and what the Reserve Bank says in coming months about outlook for the economy should be one input to decision-making.”
He continued: “The banks have already toughened up on credit. Any tougher and we are well and truly in credit crunch territory. If this comes as the economy and foreign investment in Australian property slows, the property price falls will cease to be a correction and will become a route. That would mean recession. Reforms are necessary, but sometimes a deft touch is needed to avoid boom-bust mentality.”
However, despite the growing expectation that the next RBA rate move would be a cut, all surveyed expect the RBA to keep the cash rate on hold at 1.5 per cent when its board meets this afternoon to determine the cash rate for February.
[Related: Banks buck trend and cut rates]