Analyst says interest rate cut more likely following recent economic upheaval

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Recent global economic upheaval has significantly increased the likelihood of a cut to Australia’s official cash interest rate before the end of the year.

According to online home loan comparison portal RateCity, factors such as the economic situation in China, speculation that the U.S. Federal Reserve will lift its rates and the flagging Australian Securities Exchange have combined to significantly lift the chances of the cash rate dropping below 2%.

"With the events of the past fortnight – the economic situation in China and how that had fed into the Australian share market’s mini crash – the chance of a cash rate cut has increased significantly,” RateCity financial analyst Peter Arnold said.

“Whether the RBA cuts on Tuesday is very hard to say, while it looks like a cut is the likely outcome it’s all about the timing. I think we’ll get a cut this year and I’m betting on a cut by the time Melbourne Cup runs in November,” he said

As it has in recent RBA board meetings, the current state of Australia’s housing market is also likely to figure in discussions, though recent moves by lenders across the country will make reaching a decision somewhat difficult.

“While on one hand the lenders are looking to put the brakes on investor lending, the flipside of that is that owner-occupiers are being given hotter deals on home loan rates in some cases,” North said.

“What that means is that the RBA has less need to cut because owner-occupiers are getting better deals on home loan rates without the need for the RBA’s prodding. But on the other hand, if the RBA board wants to cut the cash rate, they can do so safely because a cut is unlikely to be passed on by the lenders to investor borrowers.”
 
 

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