The 12 twists and turns in the RBA interest rate debate in a year of economic turmoil

Economists are for once unanimous in their opinion that the official cash rate will remain unchanged today at 3.5%.

All 28 economists polled by Bloomberg expect the RBA to sit tight, but in the past they have often disagreed on the direction of the cash rate and changed their minds as local and global economic factors have shifted.

Here’s a guide to how economists’ thinking has shifted over the past 12 months.

June 6, 2011

Hard for RBA to push up rates: Bill Evans, Westpac

At the time Westpac chief economist Bill Evans said the fall in GDP in the March quarter, the weakest since March 1991, along with the weaker data flow, would make it very difficult for the RBA, “from a public relations perspective, to push up rates in June”.

July 27, 2011

Higher-than-expected inflation figures could trigger rates rise: Warren Hogan, ANZ

ANZ chief economist Warren Hogan said pressure would grow on the RBA to consider an interest rate increase following CPI rising 0.9% in the June quarter. However, Hogan said that given heightened global uncertainty and weak domestic confidence (consumer and business), “we do not think the RBA will respond immediately”.

August 4, 2011

Case for cut steadily building: Shane Oliver, AMP

AMP Capital Investors chief economist Dr Shane Oliver said the global outlook was looking softer than the Reserve Bank of Australia had been assuming. “In fact, the case is steadily building that the next move in the cash rate will be down,” he said.

September 15, 2011

Interest rates likely on hold until November 2012: Alan Oster, NAB

NAB chief economist Alan Oster predicted the cash rate could stay on hold until November 2012 following the release of revised, softer inflation figures. The bank had previously anticipated rates would stay on hold until May 2012, but Oster and fellow NAB economist Rob Henderson said the inflation figures “fundamentally altered the history of the underlying CPI”.

September 27, 2011

Slowing spending makes rate cut more likely: Bill Evans 

Evans forecasted consumer spending growth to slow to below 2% for the four quarters to June 2012 and said that would make the case for a rate cut even stronger.  Along with “anaemic credit growth of 3% and modest falls in house prices it seems clear that interest rates are well into the contractionary zone,” wrote Evans in the September Coast-to-Coast report.

October 19, 2011

RBA to keep hand on pause button: Michael Workman, CBA,

ANZ, Westpac and the Commonwealth Bank all expected the Reserve Bank to keep its hand on the pause button for at least another month as it weighed up solid domestic growth prospects against global economic concerns. Commonwealth Bank senior economist Michael Workman said the most likely scenario was that the RBA would leave the cash rate at 4.75% in coming months rather than opt for a rate cut.

October 28, 2011

History suggests the RBA will sit in November: Paul Bloxham, HSBC

History suggested the RBA preferred to hold steady for long periods, rather than fine-tune, so former RBA insider and now HSBC Bank Australia economist Paul Bloxham suggested the RBA would keep the cash rate on hold in November. 

November 2, 2011

The RBA cut rates by 25 basis points, bringing the cash rate down to 4.5.%.

December 7, 2011

The RBA cut rates by 25 basis points again, bringing the cash rate down to 4.25%.

January 13, 2012

Two rate cuts in 2012 starting in February: Besa Deda, St.George

St George Bank’s chief economist Besa Deda forecast a February rate cut mainly as a result of continued uncertainty in Europe. She said two cuts were likely in 2012 but that external factors were likely to play a large part in determining what the RBA would do.

April 24, 2012

Further relief now certain for borrowers: Christopher Joye, Rismark

Rismark International and Yellow Brick Road director Christopher Joye said the RBA will “probably choose to wait until it has the benefit of seeing the Gillard government’s budget (May 8) after its May 2 meeting” and cut by 25 basis points rather than go with a 50-basis-point cut. “If it does so, its view of the world remains unchanged, and, finally, the banks do not pass on the May cut in its entirety, then the probability of follow-up relief in June would rise materially.”

May 2, 2012

The RBA cut rates by 50 basis points, bringing the cash rate down to 3.75%.

May 31, 2012

Cash rate to reach to 2.75% by year-end: Bill Evans, Westpac

Taking into consideration the gap between the cash rate and bank mortgage rates, Westpac chief economist Bill Evans said a move to 2.75% in the official cash rate was likely to bring the cash rate somewhere between 100 basis points and 145 basis points below neutral. Evans said the two extra rate cuts are based on the banks assessment that “the global environment – read Europe - has deteriorated even further since we revised down our call for the low point from 3.75% to 3.25%”.

June 6, 2011 

The RBA cut rates by 25 basis points, bringing the cash rate down to 3.5%.

June 29, 2012

Only one more rate cut in second half of 2012: Paul Bloxham, HSBC

The Reserve Bank was “ahead of the curve” on its cash rate setting and was set to leave the rate unchanged at 3.5% at its July meeting on Tuesday, said HSBC Australia chief economist Paul Bloxham. He said interest rate markets pricing in 90 basis points in cuts was “overdone”.

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