Federal election could help trigger cash rate cut

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A federal election could be the impetus for the Reserve Bank of Australia to lower the official cash rate this year according to a major mortgage broking network.

John Kolenda, managing director of 1300Homeloan, said the likelihood of the RBA moving the cash rate lower than its 2% mark is growing, with the possibility of a federal election one factor the RBA will have to consider.

“The RBA has a number of headwinds to negotiate this year which includes the downturn in China and instability in financial markets,'' Kolenda said.

“I think we are still likely to see the RBA cut rates in the first half of this year or possibly in the second half of the year when the next federal election is scheduled,” he said.

Other international factors, such as said easing by other central banks, including Japan which has cut its key deposit interest rates to below 0%, will also factor into future cash rate decisions by the RBA.

Kolenda pointed to November 2007, which saw the RBA raise the cash rate by 0.25% to 6.75% during Kevin Rudd’s first tilt at the Prime Minister’s office, to show that the central bank isn’t adverse to moving the cash rate during an election campaign.

Kolenda also believes the fact that many borrowers have become accustomed to low interest rates and almost view them as the “new normal” will also have to be taken into account by the RBA when deliberating on the cash rate’s direction.

“The GFC has changed society and consumers are generally more sensitive to economic conditions and interest rates movements, which the RBA hasn't increased for more than five years,” he said.

“We have seen a dramatic change in consumer behaviour as they prefer to save money and spend wisely versus the credit spending frenzy for the decade before the GFC.”

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