Outcome-August 2012
Strong support for "hold" in August from the CAMA Shadow Board.
CAMA's Shadow Board, which gives its views ahead of the decision by the Reserve Bank of Australia, gave strong support to hold the cash rate at the current level of 3.5 percent. The Shadow Board is made up of influential economists from the private sector and academia. They were asked to rank their preferred outcomes for the cash rate. Keeping the interest rate unchanged at 3.5 percent received around 65 percent weight, considerably above the next most popular setting, an increase to 3.75 percent, with about 15 percent weight. The Shadow Board's assessments for this month and for last month are very similar.
Support for a decrease in the cash rate of 25 basis points or more received a weight of nearly 20 percent, slightly greater than the support for an increase by 25 basis points or more. Professors Warwick McKibbin and Jeffrey Sheen continue to see substantial risks to the macroeconomy that are consistent with a higher interest rate.
In the longer term, at the 12-month horizon, CAMA's Shadow Board sees more uncertainty, with a greater range of interest rate settings envisaged than for the current month, with upside risks balanced by downside risks.
