RBA expected to hold on interest rates

THE Reserve Bank of Australia is tipped to hold off on an interest rate rise this week but a spike could be on the cards towards the end of the year.

RBA board members will meet on Tuesday to decide whether to hold or move the cash rate following its decision last month to keep the rate steady at 3%.

Economists predict rates will not change but have warned of a rise in the 2013 final quarter.

HSBC economist Paul Bloxham wrote in a forecast report that consumer sentiment and the housing market were improving due to the low interest rates.

Auction clearance rates were well above average in March, housing prices were on the rise and housing construction had continued its modest upturn, he said.

"We remain of the view that the RBA's easing phase is done, that the next move may be up, and we have pencilled in the next hike for Q4 (fourth quarter) this year," Mr Bloxham stated.

Mr Bloxham said a concern about over-inflating house prices was a key reason why HSBC expected the RBA to raise the cash rate towards the end of the year.

"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," he stated.

"But a sharp rise in already fairly high housing prices would be undesirable."

The National Australia Bank also forecasts the RBA to hold rates steady as domestic data does not doubt the RBA's confidence it has done enough to keep the economy growing.

According to NAB, evidence of this is shown in the gain of 71,500 jobs in February.

Beyond April, NAB believes there is room to cut a further 50 basis points to prevent looming lost production and income, given a very good inflation outlook.



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