Finance Finance News Cash rate to remain on hold in June

Cash rate to remain on hold in June

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Borrowers should start bracing themselves for several interest rate increases next year as the non-mining sectors of the economy start to pick up pace.

The board of the Reserve Bank of Australia meets on Tuesday, and all 15 market economists surveyed by AAP say the cash rate will stay at a record low of 2.5 per cent.

Nine say there won’t be any movement before the end of the year.

Nearly all of those surveyed are expecting a string of interest rate hikes next year that will push the cash rate to around 3.25 per cent.

Official data released Thursday showed that the mining investment boom has passed, with capital expenditure in the sector falling almost nine per cent in the March quarter.

However, investment intentions for the 2014/15 financial year in the non-mining sectors of the economy have risen to their highest levels since the global financial crisis.

Citigroup head of economics Paul Brennan said the figures show that the economy should rebalance away from being driven by mining investment smoother that previously expected.

“We believe the expectations data is above what the RBA would have pencilled in,” he said.

“Mining investment is still expected to moderate, but at a slightly reduced pace from what was previously expected.”

Mr Brennan said that it is a positive sign for future economic growth that other sectors besides housing are picking up pace.

“This news will likely reinforce the RBA’s conviction around its neutral policy bias,” he said.

Four of the 15 economists surveyed are predicting the central bank will increase the cash rate by the end of the year and only two are still forecasting a rate cut in the foreseeable future.

Commonwealth Bank economist Gareth Aird is expecting the RBA’s first interest rate rise in four years to occur in November.

He said the big lift in residential construction recently and the capital expenditure figures should be strong enough to allow the RBA to get the cash rate to more normal levels.

“In our view, the growth transition is sufficiently robust to absorb most of the job losses from the mining capex downturn,” he said.

“The jobs market, while still soft, is showing signs of improvement.

” Notwithstanding, the negative impact of the federal budget on consumer sentiment could impact on the timing of any ultimate interest rate move.”

HSBC Australia chief economist Paul Bloxham is predicting the cash rate to start rising in the last three months of 2014 and get to 3.5 per cent by the end of 2015.

He said the significant fall in consumer confidence after the May 13 ‘horror’ federal budget to be temporary.