Most Australian economists think interest rates will be kept on hold in September, but reckon the RBA's time is running out

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  • The Reserve Bank of Australia (RBA) is set to decide where the official interest rate will go on Tuesday, after cutting rates in June and July.
  • The vast majority of Australian economists surveyed by Bloomberg believe that the RBA will keep it on hold in September before cutting either in October or November.
  • Regardless of some divergence on timing, nearly all believe rates are headed far lower at some point, with many currently expecting them to find a floor at 0.5% early next year.

The Reserve Bank of Australia (RBA) is, for the first time in years, on a rate-cutting path.

Having slashed twice consecutively in June and July, it held the official interest rate at 1.0% in August.

On Tuesday, the central bank will make its decision as to where rates are going in September.

If economists’ forecasts are anything to go by, it will likely keep the rate on hold once again while it waits for more economic data to land in the coming weeks.

Of the 31 analysts surveyed by Bloomberg, 27 agreed that rates would be left where they are.

Economists see only one way forward: down (Bloomberg)

Notably, Market Economics’ Stephen Koukoulas — who has previously called out RBA governor Philip Lowe for dragging his feet — is expecting or at least hoping the RBA will cut.

He’s joined by banks Barclays and Deutsche Bank, as well as brokerage Morgans, in calling a September rate cut.

The consensus, however, becomes much more divided as we head into the pointy end of the year, and rate cuts are expected to be almost inevitable.

Seven currently expect a cut in October, but that number could quickly grow to 11 if there’s no cut in September, and higher if the Australian economy weakens further.

Notably, that October group includes two of Australia’s big four banks — Westpac’s Bill Evans and ANZ’s Richard Yetsenga — as well as AMP’s Shane Oliver.

Oliver tweeted however that he believes that a surprise cut in September is still a possibility.

“I think its a very close call and it would not surprise me if they do cut,” he said.

Meanwhile, 18 economists expect a cut in November. If a cut doesn’t happen in the two preceding months however, that will quickly become the consensus view.

With the RBA already laying the runway for rates to approach zero, most economists surveyed point to interest rates falling to around 0.5% by the beginning of 2020.

READ MORE: The RBA could re-inflate a housing bubble with threats to cut interest rates further, economists warn

That’s despite the RBA itself talking down the benefit cuts will have on the Australian economy.

Only exchange-traded funds provider Betashares expect them to be hiked at all during the next year, with most believing they’ll stay stuck at basement levels for a full 12-months pending any major change to the Australian economy.

While many of their views differ in some respect, the idea of rates being cut and kept low looks all but guaranteed.

READ MORE: The RBA is now considering the drastic measure of negative interest rates— meaning you could be paid to borrow money from the bank

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