RBA widely tipped to leave rates on hold

AAP, with a staff reporter

Economists widely expect interest rates to be left on hold tomorrow, as the economy continues to improve and the central bank's interest rate cutting cycle slows.

All 13 economists surveyed by AAP say the Reserve Bank of Australia will keep the cash rate at three per cent at its April board meeting tomorrow.

And seven of them say the cash rate will be at 2.75 per cent by the end of the year, with one final rate cut most likely in either May or June.

Since the beginning of the year, the outlook for the Australian economy has been looking better and the Chinese and United States economies have improved.

Business investment data released in February shows there is still a large pipeline of work to be done in setting up new mines and oil and gas projects.

There has also been better data from the non-mining sectors of the Australian economy.

JP Morgan Australia chief economist Stephen Walters says he has changed his forecast for the next rate cut to November, from May.

He said the firmer economic data would give the RBA some comfort about the outlook.

"As RBA governor Glenn Stevens indicated late last year, the swollen pipeline of work still to be done means investment in mining will keep rising as a share of gross domestic product for a few quarters yet," Mr Walters said.

"The RBA's earlier rate cuts, starting in late 2011, finally are getting traction.

"The economy, therefore, needs no further policy support, at least not yet."

The continued strength of the Australian dollar and a potential "growth gap" when the mining investment boom peaks later this year are factors that could spark a November interest rate cut.

HSBC Australia chief economist Paul Bloxham said the RBA was finished with its cash rate cuts and he expected an interest rate hike in the last three months of 2013.

He said the 1.75 percentage points of interest rate reductions from November 2011 to December 2012 would still be working its way through the economy and that Chinese economic growth would surge back to 8.6 per cent later this year.

"This month brought further evidence that low interest rates are gaining traction, with the clearest signs in the consumer sentiment numbers and the housing market indicators," Mr Bloxham said.

"There were further signs that households perceive current and future economic conditions as having improved, consistent with the rising equity market in recent months."

Mr Bloxham said the RBA's next rate move was likely to be up because the cash rate was at a record low.

He said a possible catalyst for a rate hike would be over-inflation in the housing market.

"Rising housing prices are needed to kick-start a rise in housing construction, which is a necessary part of the rebalancing of growth that Australia needs, after mining investment peaks later this year," Mr Bloxham said.