There is a mixed reaction from a panel of 45 economists regarding a cut in the interest rates by May this year. This survey was carried out on January 30th and February 1st in response to the shrinkage in the consumption expenditure due to the inflationary pressures from house price and an expected rise in the fuel prices.



The mixed reaction is given in the following illustration:



33 economists forecast that there will be rate cuts. 3 puts their hands up for March, 23 drag the cut to the second quarter of the year, 20 push it to May and seven do not expect this cut to take place before 2007. There were nine extremists with forecasts of high inflation.



The overall analysis of the survey says that the 4.5 rise from the past August is going to continue until March, followed by a cut to 4.25 percent by the end of June. But some economists also forecasted that the rated would not fall as there has been economic growth as pr the fourth quarter GDP indicator. The consumption expenditure has gone down but the reduction has not been drastic as shown by the rise in mortgage approvals and a revival in house prices. This has been the sole reason why the banks are not reducing the interest rates. But this inflation will be the major factor for a cut as it has already started to weaken the labor market.



However this cut will be determined by the rise in petroleum prices if the inflation remain it will affect the wages and will shoot it above the bank’s 2.0 percent target and if it falls down then there are chances of an inflationary gap to be created, thereby hacking the pace of current economic growth.