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All bets off for Cup Day rate rise

By Staff Reporter
03 November 2014 | 1 minute read

Australia's biggest Reserve Bank Survey shows no change is expected to the cash rate on Tuesday, but borrowers can expect rates to rise next year followed by a downward cycle as early as 2017.

All 33 leading experts and economists in the finder.com.au Rerserve Bank Survey – including from the major four banks – are betting the RBA will keep the cash rate at 2.50 per cent on Melbourne Cup Day tomorrow.

For the past 20 years, the Reserve Bank has moved the cash rate nine times on Melbourne Cup Day, six of which were in the past decade.


The most common reasons for a hold on Tuesday were: the economy is not strong enough to warrant a rise; high unemployment, high Australian dollar, global uncertainties, particularly in the Middle East and Europe; inflation is on target and there's pressure on house prices.

A vast majority of experts (91 per cent) are expecting the cash rate to start rising next year, with two experts forecasting rates to rise in 2016.

Just one of the 33 experts – Andrew Wilson, senior economist at Domain Group – predicts the next cash rate move will be a drop in the first quarter of 2015, citing “...bias now turning to downside … house prices now falling, inflation low, unemployment and dollar still too high, share market weaker and rising concerns over global economic outlook”.

Out of the 32 who expect the cash rate to rise, they predicted it's likely to be in August 2015 – the average of these predictions.

Michelle Hutchison, Money Expert at finder.com.au, said interest rates won't rise for long before dropping again.

"Our economy is under pressure to perform better, and all 33 experts in the survey believe the cash rate won’t rise for very long before it will start to fall again,” Ms Hutchinson said.

“The survey found that the cash rate is likely to peak at four per cent in 2017, according to the average forecast,” she said.

“There were varied expectations of when the peak could occur and how high the cash rate will rise, with a majority (60 per cent or 18 respondents) expecting the cash rate to hit its peak in 2017, while eight respondents (27 per cent) are expecting the peak will be reached in 2016 and four (13 per cent) expect the peak to hit in 2018.”

David de Ferranti, market analyst at Forex Capital Markets, is forecasting the highest peak, with the cash rate to hit 5.5 per cent.

One in three experts are expecting the cash rate to hit 4.5 to 5.0 per cent, a further one in three expect the peak to hit 4.0 to 4.25 per cent, while the remaining 30 per cent are expecting a peak of between 2.75 per cent and 3.75 per cent.

“It’s also clear that most experts believe the cash rate won’t hit the high levels we’ve seen in the past,” Ms Hutchinson said.

“And regardless of when the peak will be reached, it’s likely to start falling soon after,” she said.

Almost half of the respondents are expecting the cash rate to start falling again in 2018, while three experts are forecasting a drop as soon as 2017.

Four expect to see it to drop in 2019 and 10 are expecting it to reduce beyond 2019.

All bets off for Cup Day rate rise
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