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Don’t expect more rate cuts, economist says

Adam Smith 3 February 2017

percent handThe chances of an RBA rate hike this year are rising, according to a global investment bank.

Goldman Sachs has pegged the likelihood of a November rate hike by the Reserve Bank at “somewhere in the 40s [per cent] and rising”, the Australian Financial Review has reported. The bank has predicted three rate rises in 2018, but said the chance of the RBA moving sooner is growing.

“You’ve got to wonder why people are still looking for multiple rate cuts,” Goldman Sachs economist Tim Toohey said. He called economic conditions in Australia “the most expansionary for a considerable period”, the AFR reported.

“We still need to see some pick-up on the consumer side, but from the business conditions perspective, we’re in the ballpark already,” Toohey said.

Toohey argued that labour conditions were already improving, albeit incrementally. He said this improvement added to the case for a rate rise.

But the futures market is still pricing in a rate cut before the Reserve Bank returns to a tightening bias, the AFR reported. Financial markets have currently priced in a 16% chance of a rate cut by May. However, a growing contingent of economists and commentators have speculated that the Reserve Bank’s next move will be upward.

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