The central bank is expected to leave interest rates on hold for a third straight month in July as more signs emerge that the economy is faring better than most amid the global recession.
All of the 19 economists surveyed expect the Reserve Bank of Australia (RBA) to leave the cash rate at a 49-year low of three per cent following its board meeting this Tuesday.
AMP Capital Investors senior economist Robert Cunneen said recent economic data and indicators of improved consumer and business confidence pointed to growth picking up in the second half of 2009.
“There’s no real impulse for the central bank to change at this point in time,” Mr Cunneen said.
The last change to the cash rate was in April, when the RBA delivered a 25 basis point cut.
The minutes of the June board meeting said the economic outlook was for a “fairly gradual expansion getting underway later in the year” despite spare capacity tending to increase and inflation tending to decline.
One indicator that suggested consumer confidence was growing was retail sales, which had risen for three months in a row.
Retail turnover rose 7.4 per cent between September last year and May compared with a paltry 0.4 per cent increase in the preceding eight months, as government cash handouts and low interest rates boosted disposable income.
National accounts data published on June 3, the day after last month’s RBA board meeting, showed Australia dodged recession in the March quarter when gross domestic product (GDP) advanced 0.4 per cent.
While the view was unanimous that there would be no move this month, market economists had differing views about the period ahead.
Economists at Citi expect the RBA to raise the cash rate 25 basis points in the December quarter and by a further 50 basis points in the first three months of 2010.
“The RBA has to take a 12- to 18-month forward view on the outlook for the economy,” Citi economists Josh Williamson and Paul Brennan said in a research note.
“By December, when we think the (RBA) board will decide to initiate the first tightening, it will need to be considering whether the current historically low level of interest rates, which were set for what seemed like a severe recession in Australia, is still appropriate.”
By contrast, AMP said the RBA would deliver a further 75 basis points worth of easing in the second half of calendar 2009.
“Financial markets have stabilised, however economic activity is probably going to weaken for both the June and the September quarter in particular,” AMP’s Mr Cunneen said.
“In an environment where the economy is contracting and inflation pressures subsiding, there is scope for a further interest rate cut.”
The survey’s median forecast for the cash rate by the end of the March quarter of 2010 was 2.75 percent.
Commonwealth Bank of Australia (CBA) senior economist John Peters said the RBA and government had scope to do more should international conditions worsen.
“Most of the other advanced economies have shot all their bullets – they’ve got zero interest rates and they’ve blown their budgets to smithereens,” Mr Peters said.
“We’ve only got minuscule deficits compared to them in terms of percentage of GDP.”
But the RBA’s extra bullets were unlikely to be called upon, Mr Peters said.
The CBA had forecast that a 25 basis point cut in the September quarter had only a 60 to 40 per cent chance.