Interest rates to remain steady?

Economists are predicting that interest rates will stay at three per cent when the Reserve bank meets today.

After conducting a survey of 20 Australian economists, 19 stated that an improved economic outlook would probably influence the Reserve Bank to leave the cash rate at 3 per cent the lowest in 49 years.

The National Australia Bank is the only bank forecasting a 25 basis point rate cut. Justin Smirk Westpac's senior economist has stated that a rate change was unlikely, due to the improvement in the world economy and low interest rates, and that the global situation was stabilizing.

In the RBA's April board meeting minutes it was revealed that there were tentative signs of improvement in some economic indicators for several countries, but that it was too early to judge how durable they could be.

Mr. Smirk went on further to say that the RBA's decision to cut rates but 25 basis points last month showed that they had adopted a more cautious approach to monetary policy. Spiros Papadopoulos NAB's senior economist felt that the prospect of the jobless figures rising in the second half of 2009 may mean a rate cut was possible.

While most economists totally agree that there will be no rate change in May, many however feel that the RBA will do more in the second half of 2009.

Stephen Roberts chief economist of Nomura Australia felt that the RBA would be under pressure to act due to the higher funding costs of retail banks. Nomura have predicted that rates will bottom out at 2 per cent by the end of the September quarter.

Mr. Smirk also stated that the RBA would be keen to keep some ammunition in reserve for when the full impact of the recession is felt.

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Published on May 5-th, 2009 in Home Loans
Damon Rasheed is the CEO of Rate Detective, an Australian financial service comparison sites specialising in Life Insurance, Income Protection Insurance and home loans. Damon holds a Master's Degree in Economics from the University of Melbourne and has been involved in many start-up internet businesses.
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