It looks like the Reserve Bank of Australia's "period of interest rate stability" will come to an end with a rate rise late this year or early next year.
A resurgent Chinese economy is expected to boost mining exports in the second half of the year and unemployment is expected to fall.
As expected, the RBA kept the cash rate unchanged at a record low of 2.5 per cent at its board meeting on Tuesday and again indicated that it is not inclined to move the cash rate up or down any time soon.
The bank has kept the cash rate unchanged since August of last year, the longest period of interest rate stability since 2011.
Governor Glenn Stevens said the low level of its cash rate will continue to encourage consumers and home buyers to spend, which in turn will "foster sustainable growth".
"There has been some improvement in indicators for the labour market in recent months, but it will probably be some time yet before unemployment declines consistently," he said.
National Australia Bank senior economist Spiros Papadopoulos believes that another rate cut is not a consideration for the RBA despite the possibility of some bad economic news in the coming months.
"The fiscal tightening announced in the federal budget was anticipated while there were signs a month ago that house price growth was easing," he said.
"So the house price declines reported for May would not be a shock to them."
Mr Papadopoulos said the RBA won't start raising the cash rate until it is certain that the unemployment rate has peaked.
"The RBA is comfortably on hold and NAB still expects no change to the cash rate this year, with the next move to be up in 2015," he said.
HSBC chief economist Paul Bloxham said the RBA will need to consider returning the cash rate to more normal levels by the end of the year.
"We still think the RBA is unlikely to deliver further rate cuts and the next move for rates will be up and it could come around the end of the year," he said.
"Our view relies on a pick-up in growth in China in the second half and on Australia's labour market improving faster than the RBA is currently anticipating."
Commonwealth Bank senior economist Michael Workman said a change to recent RBA commentary is that they now expect the unemployment rate to consistently fall.
"The RBA's view is that activity in parts of the economy remains subdued though they indicated that there seemed to be some improvement coming in non-mining investment," he said.
Mr Workman expects the RBA to start increasing the cash rate in November, to rise to 3.5 per cent by the end of next year.
Share
