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When will the next rate hike be?

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Market watchers and economists have pushed back their projections for the next cash rate hike by the Reserve Bank of Australia.

Market watchers and economists have pushed back their projections for the next cash rate hike by the Reserve Bank of Australia given the tight lending conditions and the housing downturn that persisted last year.

In the latest survey by The Australian Financial Review, economists predicted that the RBA would raise the official cash rate to 1.75% by June 2020.

The correction in property prices and tighter lending conditions are expected to continue over the next twelve months, pushing the central bank to leave the cash rate chilled at 1.5% — the way it has been for over two years already.

UTS Business School professor Warren Hogan said the RBA recognises the risks posed by the current market downturn to Australia's household consumption and to the general economy.

"That said, there is a more evenly balanced outlook for interest rates than there has been for the past 18 months as the declines in house prices seen over the last six months increases the probability that the next move in interest rates in Australia is down," Hogan told AFR.

Also Read: Why rate hike could be RBA's biggest dilemma

Moody's Analytics' Katrina Ell said the cash rate was earlier projected to move upwards by the second half of this year. However, due to the larger-than-expected declines in dwelling values seen recently, the outlook has significantly shifted in the final months of 2018.

"This will hurt consumption and be a broader drag on the economy. There's a more dovish leaning from the RBA, but the likelihood of rate cuts in 2019 is remote," Ell said.

However, some economists disagree with Ell, predicting that a rate cut is likely this year.

Industry Super's Stephen Anthony is one of those who believe that with the economy is slowing, the central bank might consider bringing the rates down further.

"But should that be the official forecast? It also knows that if it can 'manage' sentiment, it may also contribute to a softening of activity rather than a bust, especially via property prices and dwelling investment," he told AFR.

In a separate report on Smart Property Investment, AMP Capital chief economist Shane Oliver said the official cash rate might go down to 1% given the slump in the major housing markets of Sydney and Melbourne.

The central bank is set to announce its monetary policy decision when the board convenes next month.

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