In its most recent Central Bank Watch report, Principal Global Investors predicted the RBA would keep the official cash rate steady at 2.5 per cent “through 2014 and into 2015”.
“As the domestic economy continues to strengthen, there may be more pressure on the RBA to raise rates,” said the report.
But given China’s “critical importance” to Australian exports, the timing of the first hike will depend heavily on the strength of the Chinese economy, said Principal Global Investors.
“One way in which these concerns can be cushioned is via a weaker Australian dollar,” the report said.
Any weakening of the Aussie dollar would be strongly influenced by the timing and speed of US Federal Reserve monetary policy tightening, according to Principal Global Investors.
“Overall, we think the RBA is unlikely to raise policy rates until the second half of 2014 – but its recent ability to wrong-foot markets means that an earlier hike cannot be discounted,” the report said.
