The Australian ³Ô¹ÏÍøÕ¾ University’s RBA Shadow Board says the official cash rate should remain unchanged with inflation still at 1.7 per cent.
The Shadow Board’s decision the cash rate should remain at the record low rate of 0.75 per cent equals 45 per cent.
The confidence in a required rate cut is at 20 per cent, with 35 per cent certainty a rate hike is necessary.
Shadow Board member Dr Timo Henckel said the rising unemployment rate and poor wage growth is a strong component for keeping the record-low rate.
“The seasonally adjusted unemployment rate in Australia inched up to 5.3 per cent, coinciding with another small drop in the labour force participation rate to 66 per cent, the economy lost 19,000 jobs in total.
“Nominal wages grew, year on-year, by 2.2 per cent, or, given the current inflation rate of 1.7 per cent, by 0.5 per cent in real terms.
“Without a considerable pickup in wages growth to prop up consumption spending, and thus overall aggregate demand, economic activity is likely to stay muted, or slow further.”
Dr Henckel highlighted consumer confidence on a positive rise from 92.8 per cent in October to 97 per cent in November.
House prices also look to have risen by 5-6 per cent since May.
“Expectations of future house prices are being continuously revised upwards: NAB expects a 7.4 per cent growth in the two largest cities, ANZ a 12-13 per cent growth.
“The Australian share market is booming, clearing the high from October 2007 with the S&P/ASX 200 stock index closing just shy of 6,900.”
However the Shadow Board notes the global economy remains weak with a significant drop in the volume of global trade.
Looking ahead, the Shadow Board believes a rate decrease will likely be the most appropriate decision in six months.
The probability attached to a rate hike has fallen to 33 per cent, down from 39 per cent last month.
Twelve months out, the estimated probability the cash rate should increase rose 10 percentage points to 36 per cent. Confidence that rates should remain steady decreases to 23 per cent.
The RBA Shadow Board is a project based at the Centre for Applied Macroeconomic Analysis in the ANU Crawford School of Public Policy.
The Board brings together nine of the country’s leading experts to look at the economy and make a probabilistic call on the optimal setting of interest rates ahead of monthly RBA Board meetings. It does not try to predict RBA behaviour.
