Australian economists not fans of Trump, while cash rate stays at 1.5%
- 90% of experts and economists accurately tipped a cash rate hold for November 2016
- 69% of experts predict a rate cut in the first half of 2017; 15% think the next rate move will be up
- Australian economists prefer Hillary Clinton over Donald Trump
1 November 2016, Sydney, Australia – Favourable inflation data may have contributed to the Reserve Bank’s call to maintain the cash rate at 1.5% this Cup Day, and while experts believe the US Federal Reserve’s potential to hike rates in December could impact upcoming rate decisions, Australian economists wouldn’t select Donald Trump as the best politician to drive economic growth, according to finder.com.au, Australia’s most visited comparison website1.
Nine out of 10 experts and economists from the finder.com.au RBA survey accurately forecasted a cash rate hold as the outcome of today’s board meeting, but despite this decision, a rate cut could be in store in the coming months.
Only three economists (12%) who forecasted beyond this month’s decision are predicting a rate cut in December. However, most experts (69%), believe a rate cut will occur in the first half of 2017.
Interestingly, four economists (15%) are expecting the next rate movement to be in a positive direction, and are forecasting a cash rate hike next year.
Graham Cooke, Insights Manager at finder.com.au says the recent release of inflation data for the September quarter coupled with strong housing price growth may have prompted the Bank’s decision to hold.
“A few months ago a November rate cut looked likely, but promising inflation data, solid house price growth in the capital cities, and robust employment figures have diminished the likelihood of another rate drop this year.
“In fact, we’re starting to hear some speculation of a rate rise for the next RBA cash rate move, but it’s not likely to occur until next year,” he says.
When asked how low the rate will go this cycle, a third of the economists who responded (10, 34%) believe the rate will fall no lower than 1.5%.
Over half (14, 58%) expect the rate to bottom-out at 1.25% or 1.00% this cycle.
As the US Federal Reserve is likely to lift rates in December, experts were asked to what extent this move could impact upcoming RBA decisions. Less than half of respondents (11, 42%) said the Federal decision would have a significant or somewhat significant impact on Australia’s monetary policy. A further 42% were neutral, while just four experts (15%) said the Federal decision would have little or no impact on future RBA decisions.
Mr Cooke says the US Federal Reserve rate decisions are generally echoed in the Australian economy.
“A rate cut in the US could trigger a cash rate drop here in Australia so market analysts will be keeping a close eye on the US Federal Reserve decisions in the coming months,” he says.
With the cash rate at a historic low, experts were also asked if monetary policy has become an ineffective method for increasing economic growth and/or inflation. Interestingly, over half (14, 54%) believe it has been ineffective.
Economists and experts were asked which US presidential candidate would be better for the Australian economy in terms of stimulating economic growth. The majority of respondents (83%, 20) said Hillary Clinton would be beneficial for the local economy, while none of the experts selected businessman Donald Trump.
The remaining four experts (17%) said the result of the US election wouldn’t make a difference to the Australian economy.
“Donald Trump is a controversial figure, but he’s always claimed to have a solid business background and a head for economics. However, the vast majority of Australian economists tend to disagree, and the majority picked Hillary Clinton as the better US president to encourage Australian, and therefore world, economic growth,” Mr Cooke says.
Here’s what our experts had to say:
Alan Oster, NAB: "Still looking to see impact of past cuts."
Alison Booth, Australian National University: "Now the inflation figures and other economic indicators are out, there is no need to change the cash rate."
Brian Parker, SUNSUPER: "The CPI data suggest that inflation may well have bottomed, and the RBA has signalled that it would very reluctant to cut rates at this point."
Christine Williams, Smarter Property Investing: "With the latest figures out I believe the rates for November will stay on hold. I am still of the belief there will be a drop in December."
Darryl Gobbett, Baillieu Holst Ltd (Decrease): "Sept Qtr CPI and other information points to underlying continuing well under 1.5% well through 2017. $A also continues higher than the RBA would see as desirable.”
Dr Andrew Wilson, Domain Group: "Close call by the Bank - last real chance for the year to influence economic activity through a cut. Mixed news on economy with significant shedding of full time jobs, falling participation rates, record low and still falling underlying inflation, trend retail sales down and high dollar. But Sydney and Melbourne house prices booming with lower rates to add fuel to that inferno and intensify the political affordability debate."
Emily Dabbs, Moody's Analytics: "Inflation has stabilised slightly and employment growth remains robust. The recent rise in house prices across Sydney and Melbourne will also play a role as the RBA keeps an eye on financial stability."
Garry Shilson-Josling, Australian Associated Press: "The economy is doing enough to allow the RBA to stay on the fence, and there are hints that inflation is bottoming out."
Grant Harrod, LJ Hooker: "Strong East Coast property markets, combined with the diminishing impact of cutting already record-low interest rates, should see the RBA hold the cash rate over the short term."
Janu Chan, St.George Bank (Decrease): "Low inflation and little prospect that it will return to the RBA's 2 to 3% target band over the medium term. This has been reinforced by softer labour market conditions which suggests that spare capacity remains within the economy. The RBA also appears more relaxed on housing. Nonetheless, we view next week's decision a very close call as recent comments by Lowe suggest flexibility around the RBA's inflation target."
John Caelli, ME: "The CPI data remains weak but continued strength in house prices means the Bank can probably remain on hold for a while."
John Hewson, ANU: "A safe bet on Cup Day. Vagueness on inflation, although core inflation consistent with RBA forecasts."
Jonathan Chancellor, Property Observer: "All the economic stats lend themselves to a wait and see approach. The strong east coast spring housing market doesn't need any extra impetus."
Jordan Eliseo, ABC Bullion: "The higher than expected CPI print guarantees a "hold" on Melbourne Cup Day, with the RBA happy to sit on the sidelines. But with core inflation still soft, the AUD far higher than they'd like to see it, and the employment picture deteriorating, it's still just a question of "when" not "if" they'll ease again."
Leanne Pilkington, Laing+Simmons: "Because to announce another rate cut with such a spotlight on the housing market would be risky from a public perspective and they would prefer to be cautious. Therefore the safest move is to leave them on hold."
Lynne Jordan, Liberty: “The odds are looking slim for a Melbourne Cup day rate cut, with the RBA set to hold the official cash rate again at 1.5 per cent. The latest inflation figures were always going to play a big part in the RBA’s decision, and with inflation creeping in a little stronger than expected, there is no need for any action yet."
Mark Brimble, Griffith Uni: "While headline inflation was slightly higher than expected, it is still outside the target band and underlying is weaker. The AUD is stubbornly creeping up and housing is reasonably robust, despite emerging weakness in certain parts of the market. Bias remains to further easing, but with November shaping up to be a big month (US elections for example) it likely they will hold for now."
Matthew Peter, QIC: "With inflation within expectations, the RBA can afford to sit on 1.5% cash rate into 2017."
Matthew Pollock, Master Builders Australia: "The Q3 CPI result was low but showed signs of improvement. on top of that commodity prices are on the improve and should give a much need boost to national income growth, and in turn lift price growth.
Michael Witts, ING Bank: "Given the solid GDP data and no further weakening in the inflation rate, together with ongoing focus on housing prices, the RBA will sit tight in November."
Michael Yardney, Metropole Property Strategists: "The RBA is looking for reasons not to cut rates further and the slight uptick in inflation, plus our generally softer property markets will allow the RBA to hold rates at the present level."
Nicholas Gruen, Lateral Economics : "Because it's flying by the seat of its pants and thinks things are OK right now - even if it forecasts continuing slack in the economy."
Noel Whittaker, QUT: "Inflation figures are OK - no reason to move."
Paul Bloxham, HSBC: "The inflation targeting regime is 'flexible' and the RBA has already cut by 50bps this year."
Paul Dales, Capital Economics: "The weakness of underlying inflation in the third quarter means there is a greater chance than widely believed that the RBA will cut rates to 1.25% in November. However, the focus on the medium-term nature of the inflation target, concerns over housing and the recent rises in commodity prices mean the RBA is more likely to put up with low underlying inflation and keep rates at 1.5% for now. "
Peter Haller, Heritage Bank: "Quarter 3 inflation data was not sufficiently weak to justify a further cash rate cut at this time"
Richard Holden, UNSW Business School: "Inflation data was not terrible."
Robert Montgomery, Infrastructure Partnerships Australia: "Despite low underlying inflation recorded in the latest data release, the RBA will hold rates at 1.5%. However, continued low inflation could put pressure on the RBA to make a further cut in 2017."
Saul Eslake: "(1) Latest inflation numbers don't warrant taking interest rates down to a new record low; (2) Other economic data released since last meeting will have done little to alter the RBA's assessment of or outlook for the Australian economy (although maintenance of upward trend in coal and iron ore prices might have made them marginally more optimistic); (3) growing prospect of Fed raising US rates means there could be some (welcome) downward movement in the A$ by year end"
Savanth Sebastian, Commsec: "Modest lift in inflation is likely to result in policy makers holding off from cutting the cash rate. Debate on the benefit of further rate cuts will be a key reason for a no change decision."
Scott Morgan, Greater Bank: "The economic data doesn’t support a cut at this time. Core Inflation is still below target but in line with expectations. The US Fed decision on rates may be a key driver of any further Australian cash rate movements."
Stephen Koukoulas, Market Economics (Decrease): "Inflation has been undershooting the RBA target for two years and shows no signs of lifting. The recent CPI saw the lowest quarterly and annual underlying inflation result on record. The RBA needs to cut rates to try to get inflation back to its target range."
1 Experian Hitwise 2015
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