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RBA TIPPED TO HOLD RATES

A majority of industry participants feel the Reserve Bank of Australia (RBA) will hedge its bets when the board meets later today and leave the official cash rate on hold.

In a recent survey,  76.6 per cent of respondents said they did not expect to see a rate cut in March, while 23.4 per cent of the 308 participants feel a rate cut could be on the cards.
The Reserve Bank will leave the cash rate untouched at 3 per cent. We are starting to see some tentative signs that rate cuts are having an effect, and that as a result, the RBA board is likely to take a wait and see approach.

The December quarter capex survey was probably not soft enough to convince the RBA to ease again just yet.

However, the RBA is likely to signal that it retains an easing bias with the benign inflation outlook providing scope to ease if needed.

My view is that although green shoots are starting to appear in the Australian economy, they are still very fragile and to ensure they don’t whither the RBA should be cutting rates again.

I think rates will be on hold in March, I expect rates to fall to as low as 2 per cent within the next 12 months.  Leaving the cash rate somewhere between 2.5 and 2 per cent by year’s end.