Economists have predicted that the Reserve Bank of Australia (RBA) is expected to leave interest rates on hold this week in a further sign that it has reached the end of its rate cutting cycle.
AAP surveyed 19 economists all of whom believe that the cash rate will remain at three per cent after the central banks board meeting on August 4th.
Eleven economists believe that the cash rate will remain at that level until the end of the 2010 March quarter, as the economy is tested by the rising unemployment rate and the potential housing bubble.
Four of the economists surveyed believe that recent comments made by RBA governor Glenn Stevens indicate that there could be a rate hike the first since March 2008 before the end of 2009.
Matt Robinson an economist with Moody's Economy.com stated that the RBA had no intention of reducing the cash rate any further, he also felt that a housing market bubble was starting to form, and given the sentiment expressed by governor Stevens in his speech to the Australian Business Economists, which is something that the RBA is watching and that could be a reason for them to raise interest rates earlier.
In a recent speech at a charity function, governor Stevens stated that it would be a "very real challenge" in the near term to make sure the ready availability and low cost of housing finance translated into an increased supply of housing. He also raised doubts whether rising unemployment would deter the RBA from raising rates.
In response to a question governor Stevens stated that he had never seen it written down, or never heard in discussion in the institution some rule of thumb that stated we waited till unemployment had peaked before we raise the cash rate.
The RBA has kept the cash rate at 3 per cent for three consecutive months.
Michael Turner, an economist with financial markets research group 4Cast stated that the prospect of rising unemployment would mean the central bank would keep rates steady until well into 2010, and was also of the opinion that the worst was still to come and although things looked better now than they did a couple of months ago, which is why rates will remain on hold in August rather than going lower.
According to the latest figures from the Australian Bureau of Statistics the nation's unemployment rate currently stands at 5.8 per cent but Treasury forecasts included in the federal budget project that the unemployment rate could rise to 8.5 per cent by late 2010.
ICAP economist Adam Carr has predicted that the central bank will raise rates by 25 basis points in the December quarter and again in the first quarter of 2010.
The RBA is due to announce its decision on interest rates at 2.30pm (AEST) on Tuesday.