RBA tipped to leave rates on hold again

The central bank is expected to leave interest rates on hold for a third straight
month in July as more signs emerge that the economy is faring better than most amid
the global recession.
All of the 19 economists surveyed by AAP this week expected the Reserve Bank of
Australia (RBA) to leave the cash rate at a 49-year low of three per cent at
Tuesday's RBA board meeting.
AMP Capital Investors senior economist Robert Cunneen said recent economic data and
indicators of improved consumer and business confidence pointed to growth picking up
in the second half of 2009.
"There's no real impulse for the central bank to change at this point in time," Mr
Cunneen said.
The last change to the cash rate was in April, when the RBA delivered a 25 basis
point cut.
The minutes of the June board meeting said the economic outlook was for a "fairly
gradual expansion getting underway later in the year" despite spare capacity tending
to increase and inflation tending to decline.
One indicator that suggested consumer confidence was growing was retail sales, which
had risen for three months in a row.
Retail turnover rose 7.4 per cent between September last year and May compared with
a paltry 0.4 per cent increase in the preceding eight months, as government cash
handouts and low interest rates boosted disposable income.
National accounts data published on June 3, the day after last month's RBA board
meeting, showed Australia dodged recession in the March quarter when gross domestic
product (GDP) advanced 0.4 per cent.
While the view was unanimous that there would be no move this month, market
economists had differing views about the period ahead.
Economists at Citi expect the RBA to raise the cash rate 25 basis points in the
December quarter and by a further 50 basis points in the first three months of 2010.
"The RBA has to take a 12- to 18-month forward view on the outlook for the economy,"
Citi economists Josh Williamson and Paul Brennan said in a research note.
"By December, when we think the (RBA) board will decide to initiate the first
tightening, it will need to be considering whether the current historically low
level of interest rates, which were set for what seemed like a severe recession in
Australia, is still appropriate."
By contrast, AMP said the RBA would deliver a further 75 basis points worth of
easing in the second half of calendar 2009.
"Financial markets have stabilised, however economic activity is probably going to
weaken for both the June and the September quarter in particular," AMP's Mr Cunneen
said.
"In an environment where the economy is contracting and inflation pressures
subsiding, there is scope for a further interest rate cut."
The survey's median forecast for the cash rate by the end of the March quarter of
2010 was 2.75 percent.
Commonwealth Bank of Australia (CBA) senior economist John Peters said the RBA and
government had scope to do more should international conditions worsen.
"Most of the other advanced economies have shot all their bullets - they've got zero
interest rates and they've blown their budgets to smithereens," Mr Peters said.
"We've only got minuscule deficits compared to them in terms of percentage of GDP."
But the RBA's extra bullets were unlikely to be called upon, Mr Peters said.
The CBA had forecast that a 25 basis point cut in the September quarter had only a
60 to 40 per cent chance.