Despite ongoing concern that the Reserve Bank of Australia (RBA) will look to raise rates in the near future, one economist believes the Board will now keep the cash rate on hold until 2012.
AMP’s chief economist Shane Oliver said ongoing debt problems in Europe would encourage the Reserve Bank to keep the cash rate stable at 4.75 per cent for the rest of the year.
And, if the problems abroad worsen, Mr Oliver believes the RBA could actually contemplate cutting rates.
“Going forward, the most likely scenario for the next few months is that rates will be on hold – and that’s against a backdrop of continuing inflation concerns on the part of the Reserve Bank,” he said.
“Moreover, we are in the midst of a mining boom, which would indicate the need for a rate hike, but with the ongoing debt problems overseas, I expect rates to stay to stay on hold. In fact, economic weakness domestically is building the case for a rate hike, but at this stage I am not forecasting one.”