Get ready for further RBA rate cuts

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Further reductions have been predicted for Australia’s official cash interest rate, but it is widely expected that the Reserve Bank of Australia will not announce any movement after its board meeting this afternoon.

While the RBA surprised many with its decision last month to drop the official cash rate by 0.25% to 1.75%, all 31 economists and financial commentators in Finder's monthly RBA survey have predicted the cash rate will not be changed following today’s meeting.

While sentiment is unanimous that a rate change won’t come today, 68% of respondents believe the RBA will announce another cut before the end of the year.

Of those who believe a rate cut is on the cards for 2016, 45% believe it will be announced in August, while 10% identified September and 13% November.

James Boyle, chief operating officer of Liberty, believes a cut won’t come until August as the RBA monitors the outcomes of last month’s rate cut, including its impact on the property market.

“It’s hard to ignore the downgraded inflation forecasts the Board issued earlier in the month, although I still don’t see another cut coming until at least August,” Boyle said.

“The Board will no doubt be monitoring the impacts of the last rate cut on the country’s stronger property markets. Auction clearance rates in Sydney performed strongly on back-to-back weekends in May, while Melbourne is seeing listing numbers similar to the same time as last year. First home buyers and investors are returning to the market with the promise of lower interest rates – and this is improving the outlook for the sector,” he said.

Grant Harrod, chief executive officer of real estate franchise LJ Hooker is also tipping a rate cut for August with conditions in the property market likely to play an important role in the RBA’s decision.

“The RBA will now monitor the effect last month's rate cut has on the economy. Lending institutions continue to de-risk the housing market by raising rates to investors, and limiting borrowing by non-resident buyers,” Harrod said.

“This is resulting in price growth moderating and also allows the RBA to cut rates further, later in the year, as needed,” he said.

In terms of how low the RBA is willing to take the official cash rate, 60% of respondents believe the central bank will only go to 1.5%, while 12% believe it will head below that.
 

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