Market split on next RBA interest rate decision

MARKET opinion is divided over whether the Reserve Bank will lift interest rates next Tuesday.

Economists are split over the RBA's next rates move on Tuesday / AP

MARKET opinion is divided over whether the Reserve Bank of Australia (RBA) will lift the interest rate next Tuesday, the first working day after Easter.

Nine of the 15 economists surveyed by AAP forecast the RBA would increase the cash rate by a quarter of a percentage point after its board meeting in Sydney on April 6.

A key indicator, the debt futures market, is pricing in a 50 per cent chance of a hike of that magnitude.

Six economists canvassed by AAP said the central bank would leave the cash rate on hold at four per cent.

"In the absence of some press commentary, I would think on the data alone there would be no chance of a rate hike," ICAP economist Adam Carr said.

Mr Carr said the RBA would hold the cash rate steady but there was also a good chance it could also raise the rate to 4.25 per cent.

A cash rate rise of this magnitude would add about $45 to the monthly repayment on a $300,000 mortgage.

"The economic indicators up to this meeting have slowed sharply," Mr Carr said.

"I would have thought, given they paused in February, that when the data is weakening they'd pause.

"But we'll see. The market is split, obviously."

The Australian Bureau of Statistics (ABS) this weeek reported a 1.4 per cent fall in retail trade in February, almost reversing the 1.2 per cent gain in January.

ABS building approvals data showed a 3.3 per cent fall in the number of approvals in February, following a 5.5 per cent fall in January.

One of the few bright sparks has been data showing Australia's jobless rate was 5.3 per cent in February, up slightly from 5.2 per cent the month before.

Citigroup economist Joshua Williamson said the March jobs data was not a major concern and would not be the start of a trend.

Mr Williamson, one of the more hawkish economists surveyed, said he predicted a cash rate of 5.25 per cent at the end of 2010 as the RBA attempted to curb inflationary pressures in an economy growing at four per cent.

"The data we've had has been a little negative, sure, but it's not going to be a trend later in the year," he said.

"I think there's a concern that rates are too low at the moment for the economy and where it's headed.

"The fact is you have labour force (growth) being much better than expected and that's going to add to incomes in the second half of the year. That will keep a floor under consumption and expenditure growth."

Nomura Australia economist Stephen Roberts said the RBA risked misjudging the pace of recovery if it lifted the cash rate on Tuesday.

He said a 25 basis point rate rise would push the major banks average standard variable mortgage rates to around seven per cent.

Since October last year, the RBA has lifted the cash rate by a total of one percentage point, following 25 basis point rate rises each month except January and February, with the increases matched or exceeded by major lenders.