Economists expect rate rise – but only just

It’s likely to be a close-run thing, but economists are still leaning towards a rate hike today, with the Reserve Bank tipped to push up the official cash rate by 25 basis points to 4%.

A Reuters poll of 18 economists found 12 think the RBA will lift rates today to 4%, while six are expecting another pause, after February’s surprise decision to leave rates on hold.

Futures markets reflect this somewhat divided mood, pricing in a 60% chance of a rate rise.

While growing uncertainty about the state of the global recovery – particularly in Europe – is weighing on markets, economists say the weight of positive data about the Australian economy leaves the RBA with little choice but to keep pushing rates higher.

Stronger than expected employment data, solid house price gains, good building approvals and housing finance data have all shown the Australian economy is on track, allowing rates to move back towards what RBA Governor Glenn Steven has described as “more normal settings”.

Yesterday, Stevens delivered a particularly upbeat assessment of the Australian economy at a business forum in Melbourne, saying Australia’s proximity to the booming economies in Asia has stood the country in good stead.

“We remain open for business, plugged into the part of the world where all the growth is,” he said.

Regardless of whether the RBA decides to hike today or not, perhaps the best advice comes from CommSec Craig James – rates are heading north and consumers and businesses need to be prepared.

“Rates are likely to go up – if it’s not this month, it will be April or May – certainly the smart money is on rates moving higher.”
“Most consumers, borrowers or investors want to plan ahead. It matters little if rates go up in March or if the increase is delayed a month or so. But certainly most people want a general idea about how high rates are likely to go.”

SmartCompany will report on the RBA’s decision at 2:30pm.