Economists divided on six-month rates forecast

Five out of 20 economists surveyed by the Australian Financial Review expect the Reserve Bank to cut interest rates by the end of the year, while six tip rates to fall over the next six months. Five others expect rates to rise in the next six months.

The most popular six-month forecast (the view held by nine out of 20 economists) is for the RBA to leave its finger on the pause button.

In the previous AFR quarterly survey carried out at the end of June, only four out twenty economists (Westpac, St.George, Goldman Sachs and UBS) correctly predicted that rates would remain on hold at 4.75% with the majority of economists expecting a rate rise by now.

The economic barometer has shifted significantly over the past three months as the world economy lurched from one crisis to the next and the outlook for the US and the Eurozone remains unstable and uncertain.

Looking ahead to March next year, Shane Oliver, AMP’s head of investment strategy, is tipping the greatest fall in the cash rate by 75 basis points to 4% by while at the opposite end of the scale HSBC’s chief economist Paul Bloxham expects the cash rate to rise by 25 basis points to 5% over this period.

Oliver forecasts GDP growth of just 1.5% for the 2011 calendar year and 3.2% for the 2012 calendar year.

Four economists, including Westpac’s chief economist Bill Evans expects the cash rate to sit at 4.25% by March next year.

The range of six month-forecasts highlights the “very usual, set of complex forces” shaping the Australian economy mentioned by RBA governor Glenn Stevens in a recent speech.

Evans’ predictions of two rate cuts by March 2012 come with forecasts of low GDP growth of just 1.2% for the 2011 calendar year and 3.6% for the 2012 calendar year on the back of “underperforming housing”

Optimistic forecasters include Nomura’s Stephen Roberts and Roland Randall from TD Securities, who expect the economy to grow by 4.6% during the 2012 calendar year.