Rising dollar a concern, but RBA rate move unlikely

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The rising Australian dollar warrants a close eye but the cash rate is expected to remain on hold when the Reserve Bank of Australia (RBA) meets today.

Thirty-four of 35 (97%) leading economists and analysts in the finder.com.au Reserve Bank Survey expect the cash rate to remain at 2% at the RBA board meeting next Tuesday. The last time the central bank cut the cash rate was in May 2015. 

“The RBA will likely be on hold as the domestic economy continues to perform positively with minimal impact from the equity and capital markets volatility from the earlier part of the year,” ING head of treasury, Michael Witts said.

“The RBA will be concerned that the Australian dollar's move higher is contrary to the decrease in the terms of trade of recent years.”

Over half (60%) of those surveyed predict no movement for the rest of the year, with the majority of this group forecasting a rate rise – but not until 2017 at earliest. Just three analysts (9%) expect a fall beyond 2016.

Of the economists (31) who weighed in on how low the cash rate could drop this cycle, 52% said it would drop no lower than its current value. Twenty-nine percent predicted a low of 1.75%, and 19% predicted the rate to drop to 1.50% or lower.

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