While the “country’s leading experts” are convinced that the Reserve Bank of Australia (RBA) should hold the official interest rate at 1% later today, their insight differs more widely regarding the action that should be taken in the next year.
The Australian National University’s RBA Shadow Board consists of nine “distinguished” macroeconomists who make probabilistic calls on the optimal interest rate decisions ahead of monthly RBA meetings. The higher the percentage attached to a given cash rate, the greater the board’s confidence it is the appropriate target.
Ahead of the central bank’s announcement this afternoon, the RBA Shadow Board is 68% confident the interest rate should remain unchanged, 22% convinced it should be hiked to 1.25% or higher, and 11% sure that a further cut would be appropriate.
However, the sentiment becomes much more evenly split when considering the remainder of 2019 and beyond.
Looking forward six months, the board has attached a 29% probability the rate should remain at 1.0%, a 33% designation to the appropriateness of a rate cut, and a 38% probability to a required rate increase.
The board more firmly believes action should be taken within a 12-month window, with just a 19% probability the cash rate should be held steady at 1.0%. Confidence in a decrease equals 26% and a rate increase in 12 months sits at 55%.
According to ANU RBA Shadow Board member Dr Timo Henckel, poor wage growth, low household consumption, a domestic drop in business confidence and ongoing threats from the global economy were all taken into consideration.
He said, “Global interest rates are falling, reflecting economic weakness and attempts by central banks, including the US Federal Reserve, to stimulate spending.
“How effective these interest rate cuts in such a low-interest environment are, is questionable. Moreover, it risks fuelling household and government debt worldwide.”
