Cash rate movements uncertain amid pandemic

 — 1 minute read

Close to nine in 10 economists have said they do not think international travel will restart until next year, with many being unsure amid the coronavirus shutdown when the RBA will be set to next move the cash rate.

The latest Finder RBA Cash Rate Survey, which has talked to 42 experts and economists, has made the prediction, with the vast majority (95 per cent) anticipating the Reserve Bank will decide to hold the cash rate at 0.25 per cent for May. 

Only two economists have predicted otherwise for the outcome of the RBA’s meeting on Tuesday: Alison Booth of ANU and Nicholas Frappell of ABC Bullion both expect the cash rate to drop to 0 per cent.


But as for when the cash rate will next move, there was less certainty. Half of the respondents (21) indicated an eventual rise, but could not point to any particular time in the next three years. 

A further 10 economists said the central bank could choose both a potential rise and cut in the future.

Nicholas Gruen, chief executive of Lateral Economics said the RBA should cut to the zero or below, but it has previously indicated it will not take the plunge. 

Shane Oliver, chief economist at AMP Capital commented: “Based on the experience of other countries there is no value in taking rates negative.”

“So any further easing in monetary policy will have to come from quantitative easing. 

“In the meantime, the coronavirus-related shutdown will cause a big hit to growth that will take years to fully recover from. This in turn will mean that it will be many years before we see full employment and inflation in the target range of 2-3 per cent, which in turn will mean rate hikes are many years away.”

Meanwhile, the vast majority of participants (87 per cent of 31 experts who weighed in on tourism), expect the country’s borders to remain closed for the rest of the year, with only four respondents (13 per cent), saying international travel restrictions would be lifted before 2021.

In total, 13 believe the border will fully reopen in the first six months of 2021, while 12 think it will happen later in the year. 

Tourism Australia data has shown that the sector makes up 5 per cent of the country’s workforce and international tourists delivered $45.4 billion to the economy last year. 

Australia is projected to lose $25 billion in foreign spending if borders remain closed. 

Graham Cooke, insights manager at Finder, said there is a risk that the volume of international travellers won’t return for many years. 

“Continuing restrictions are projected to result in [millions of] fewer tourists into 2021 and with it, billions in foregone spending,” Mr Cooke said.

“This is a problem for all corners of Australia with 44 cents of every tourism dollar spent in regional destinations.”

Australia shut its borders to non-residents amid the pandemic on 20 March.

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Cash rate movements uncertain amid pandemic
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Sarah Simpkins

Sarah Simpkins

Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth. 

Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio. 

You can contact her on [email protected].


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