Which way, how much

Money asked four leading economists for their tips

Tim Hampton, BIS Shrapnel

PREDICTION: Two cuts totalling 0.5%

With all levels of government cutting expenditure, minerals-related investment near its peak and the dollar remaining high, the economy is in need of further stimulus. Maintaining economic growth around 3% will require a recovery in domestically focused investment spending. We therefore expect the Reserve Bank to lower the cash rate during the first quarter and again during the second quarter. We then expect the cash rate to remain unchanged at 2.5% through the remainder of 2013. A sustained rise in consumer and business confidence over the next few months might prevent the second of these cuts.

Hans Kunnen, St George Banking Group

PREDICTION: One cut of 0.25%

We think the cash rate will be at 2.75% by the end of 2013, but there could be murmurs of a rate rise in early 2014. We are looking for the rate to fall to 2.75% in April and to remain on hold until the first half of 2014. The sorts of things that trigger rate cuts are job losses and the threat of recession. We believe a rate cut would ease the burden faced by those affected by the high dollar. It would also cement a recovery in the home building sector. Job growth has slowed recently and retail spending has been subdued. But be warned, following reductions come rate rises. It is possible fixed rates could rise during 2013 in anticipation of a higher cash rate in 2014.

Chris Caton, BT Financial Group

PREDICTION: One cut of 0.25%

The economy enters 2013 in relatively good shape, but with a significant degree of uncertainty. The biggest domestic risk is what happens when the mining capital expenditure boom ends. Suddenly, the major source of growth won’t be there. Some other component(s) of demand will have to step up, or the economy will falter badly. The rate cuts already undertaken are likely to help growth in confidence, consumer spending, construction etc. But more may be needed, although perhaps not as much as generally thought. I think we’ll see just one more cut of 25 basis points, (0.25%) and probably in the first half.

Paul Bloxham, HSBC

PREDICTION: One increase of 0.25%

We expect the easing phase of this RBA rate cycle is probably already done. China’s economy is recovering and we expect a pick-up in Chinese growth in 2013 to support commodity prices and Australian income growth. The below-average level of mortgage rates is also expected to support some recovery in the local housing and retail industries. We expect the current rates setting to be sufficient to prompt a rebalancing of growth in the economy through 2013. By the end of the year we see the RBA as needing to consider edging rates upwards. Overall we have the RBA on hold at 3% until the fourth quarter when we expect the cash rate to rise to 3.25%.

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