finder.com.au RBA Survey: Cash rate to hold, but Aussie dollar set to plummet
- finder.com.au Reserve Bank Survey of 31 experts unanimously expect no change to cash rate
- 58% of experts predict rate rise in 2016
- Majority expect Australian dollar to fall below $US0.65
October 3, 2015, Sydney, Australia – While experts are united in expecting the official cash rate to hold at 2 percent at the Reserve Bank meeting on Tuesday (October 6, 2015), they’re divided on prospects for the Australian dollar, according to the latest Reserve Bank Survey conducted by one of Australia’s biggest comparison websites, finder.com.au.
The finder.com.au Reserve Bank Survey of 31 leading economists and experts, which is the largest of its kind in Australia, found that experts were unanimous in expecting no movement to the cash rate at the October meeting. Several experts cited the change in Prime Minister has had a positive effect on the market with the recent softening of the Australian dollar also being beneficial to businesses exporting goods and services.
Just two experts – Jonathan Chancellor from Property Observer and Shane Oliver from AMP Capital – predict the cash rate to fall in November this year, while 94 percent do not think the cash rate will move again this year.
However, there is some consensus that changes are in the pipeline, with 60 percent predicting a rate rise next year, while 40 percent predict a rise to occur beyond 2016. Of those who expect the cash rate to increase in 2016, about half predict this will occur in the last quarter of 2016.
Economists were more divided when asked about the future of the Australian dollar. Out of those who answered this section, over three-quarters (76 percent) of these 29 experts expect the Australian dollar to fall below US$0.65 this cycle, however they were torn on when it will hit its lowest point.
Just 14 percent (4 of 29 respondents) predict the Australian dollar to hit its lowest point against the US dollar by the end of this calendar year. The majority – 72 percent – of experts expect this to happen in 2016; in fact, 44 percent of experts believe this will happen in the first half of 2016. Just 14 percent of experts think it’s further in the future, and don’t expect the Australian dollar to plummet to its lowest point until beyond 2016.
finder.com.au Money Expert Michelle Hutchison says the Australian dollar is expected to fall further before it recovers.
“It’s daunting to think just last year, in July 2014, the Australian dollar was buying almost US$0.95 and we were trading at parity with the United States from June 2012 to May 2013. Fast forward to September 2015, and an overwhelming majority – 86 percent – of experts in our latest survey predict the Aussie dollar will fall to US$0.70 by the end of this calendar year, with over two in five believing it will plummet further – to US$0.65 – by year’s end. This can have a significant knock-on effect for Australians, especially those heading overseas this summer.
“International money transfers and overseas property investment are also likely to be adversely affected. Whether you’re sending money overseas, buying anything offshore, travelling abroad or have a home loan, keep track of both movements to the Aussie dollar and interest rates as next year is set to get tougher.”
What our experts had to say in the finder.com.au Reserve Bank Survey:
Melissa Browne, A+TA: “I think the property market auction clearance rates in some parts of the country has fallen and people are still cautious. I think purchasing good quality property for the long term is still ok.”
Garry Shilson Josling, AAP: “There are signs that the economy is generating sufficient jobs to stop unemployment from trending up. With the positive effect of earlier exchange rate falls still flowing through, the Reserve Bank will be hoping it doesn't have to cut further. There is a chance the Reserve Bank may be tempted to cut the cash rate again. It overestimated the positive economic effect of the resource investment boom, and could overestimate the negative effect of the current slump in resource sector investment.”
Shane Oliver, AMP Capital: “Not enough has changed since the last meeting and Governor Stevens was ‘pretty content’ when he last spoke on rates.”
Peter Munckton, Bank of Queensland: “The Reserve Bank are currently happy with the level of interest rates.”
Steven Pambris, Bank of Sydney: “Monetary Policy has reached its usefulness at this point will need to pause and asses agenda of economic direction and effectiveness through Fiscal policy by new Leadership.”
Richard, BIS Shrapnel: “Although the latest economic growth figures were weak, employment growth is still reasonable, while residential property markets are still too buoyant. So Reserve Bank will continue to wait.”
Chris, BT Group: “The Reserve Bank has given no indication to think otherwise.”
Savanth Sebastian, Commsec: “The Reserve Bank is still in 'wait and see' mode. Current low rates are having a credible impact in fostering economic activity.”
Andrew Wilson, Domain Group: “Economic data remains neutral.”
Paul Williams, Heritage Bank: “The Reserve Bank seems content to hold rates steady to encourage further recovery in the non-mining sections of the economy.”
Shane Garrett, Housing Institute of Australia: “The Reserve Bank will wait and see how the developments in China pan out before adjusting rates further.”
Paul Bloxham, HSBC: “The economy is continuing to balance, and the improvement in the labour market is something that has made the Reserve Bank much more comfortable with the economy.”
Grant Harrod, LJ Hooker: “Overall, the Reserve Bank remains positive about Australia’s economic outlook. This is thanks, mainly, to the softening of the Australian dollar which should help lift trade exposed industries and support employment in these sectors. The improving US economy is also another bright spot for the Reserve Bank with the timing of a US Federal Reserve interest rate hike, and its effect on the Australian economy, likely to influence the Bank's next decision.”
Stephen Koukoulas, Market Economics: “Policy stimulus is already in place, aided by a very competitive level for the Australian Dollar. There is no need to adjust official interest rates.”
Peter Jones, Master Builders Australia: “Rates are at an appropriate level.”
John Caelli, ME Bank: “Given that inflation remains well under control the Reserve Bank is likely to wait to see how volatility in global markets plays out and how this is likely to affect growth going forward.”
Mark Crosby, Melbourne Business School: “International events are still very volatile, but stable. With the Fed having held rates probably little reason to move in either direction.”
Katrina Ell, Moody's Analytics: “The Reserve Bank looks comfortable on the sidelines and the lower Australian dollar has begun doing the heavy lifting getting the economy back on track.”
Lisa Montgomery, Mortgage and Consumer Finance Expert: “The Reserve Bank will maintain their position on official rates - they will however be watching closely the consumer confidence numbers which have been showing some positive signs over the last week. Whether this is sustained under the new administration will remain to be seen.”
Jessica Darnbrough, Mortgage Choice: “Economic growth remains sluggish and the sharp decline in mining related investment is yet to be replaced with other drivers.”
Chris Schade, MyState Limited: “Domestic financial conditions are highly accommodative and an additional interest rate cut is not our central scenario. Whilst recent global developments have added to downside risks, the bar for a further cut is high and we expect the Reserve Bank to continue to wait on hold and see how the economy develops.”
Alan Oster, National Australia Bank: “The non-mining sector is starting to improve, so there's no reason to do anything yet. The Reserve Bank is in 'sit and watch' mode.”
Peter Boehm, onthehouse.com.au: “Leadership change resulting in Malcolm Turnbull becoming Australia's new Prime Minister has been well received by the electorate and financial markets generally. With improved economic and financial management high on his agenda the market needs time to digest the impacts of any policy initiatives he may introduce. Furthermore, current economic performance and the exchange rate of the Australian Dollar would not justify a rate cut at this stage. In fact, it is highly likely interest rates will stay as they are for at least the remainder of the calendar year.”
Linda Janice Phillips, Propell: “The Australian Dollar is holding at around US71c, a level that the Reserve Bank is comfortable with, though the volatility is high, reflecting global events. The change in the federal government leadership to Turnbull has been welcomed by markets and business, and the Reserve Bank is likely to wait and see if this improves confidence, spending, and the economy. While the Fed did not lift rates in September, a move remains on the table, and in the absence of any obvious problems, the Reserve Bank will more than likely keep its powder dry... The new and improved outlook for the economy will have an impact on the residential market. While we are moving into a more stable market, where even in Sydney and Melbourne, price rises in the next year likely to be around 5%, improved consumer confidence is likely to see current price levels being maintained. With mortgage rates remaining at historically low levels, it continues to be favourable for investing in residential real estate. The only caveat is that, in a period of stable prices, investors need to more thoroughly research the choice of market and to understand well the property market that they intend operating in.”
Jonathan Chancellor, Property Observer: “It is still a little early to move.”
Matthew Peter, QIC: “Domestic and global growth outlook is still uncertain, yet housing market concerns and current low level of the cash rate will mean the Reserve Bank will ‘keep their powder dry’ in case of a more serious economic downturn… Buying an investment property takes time, knowledge and no emotion, so getting caught up in the spring selling season could be a mistake. There will be cheaper wiser investments available later.”
Noel Whittaker, QUT Business School: “One significant factor for no change at the October meeting is the recently appointed Prime Minister… The Turnbull election is a potential game changer.”
Angus Raine, Raine & Horne: “I'm not convinced the Reserve Bank feels there is enough reason to justify tweaking monetary policy at this point, as they continue to monitor Australian unemployment figures while keeping an eye on international economic developments. I'd expect the Reserve Bank will also want to see some more results flowing through from the traditional Spring property market… It's a good time to invest in real estate, as long as you do your research and you invest in a quality, well-located property.”
Janu Chan, St.George Bank: “The Reserve Bank is quite comfortable with current interest rate settings.”
Scott Haslem, UBS: “I think the Reserve Bank Feels that the economy is rebalancing moderately and there are signs of some improvements coming through. The currency has also adjusted quite significantly, so I don't think conditions are bad enough to cut what are already record low interest rates.”
Bill Evans, Westpac: “Markets expect [the cash rate] to be 1.75% in one year's time... Over the following years markets expect the RBA cash rate to average 1.8% in the year to September 2017; 2.0% in the year to September 2018; and 2.4% in the year to 2019. The question is whether these extremely benign expectations are realistic.”
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