Mixed opinions on rate cuts

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The softening Australian Dollar and moderating property price growth will likely leave the cash rate on hold until the Reserve Bank of Australia’s second quarter meetings, according to LJ Hooker CEO, Grant Harrod.

Harrod said the RBA will leave the cash rate on hold at 2.5% when it meets on February 3 to help underpin construction employment away from the mining sector and to stimulate the construction of new housing.

“Price growth has been moderating and will continue to do so, but transaction volumes are still very strong,’’ he said.

“The RBA is watching the markets return to sustainable levels and employment figures at the end of December were better than expected.

“It’s most likely the cash rate will remain at its current level during the first quarter.”

Despite many predicting the cash rate will drop next month, LJ Hooker’s national research manager Mathew Tiller says keeping the cash rate stable is expected to see demand for property remain elevated, as buyers continue to take advantage of the cheap mortgages on offer.

However, it shouldn’t see the resumption of steady price growth like it would if rates were dropped.

Meanwhile, Westpac’s global head of economics Bill Evans said it would be “awkward” if the Reserve Bank doesn’t cut interest rates by 25 bps when it meets on February 3.

“The prospect of moving in February should be attractive to the Bank,” Evans said.

“Delaying the move to March, which seems to be favoured by markets, makes the Statement much more awkward, particularly if, as we expect, the bank's inflation forecasts will be lowered significantly.”

Westpac expects the RBA to cut rates twice this year, in February and March, to a new record low of 2%.


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