Major bank calls RBA rate cut in early 2016

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Researchers from one of Australia’s biggest banks have weighed into the discussion surrounding interest rates, believing the Reserve Bank is likely to cut the official cash interest rate in early 2016.

In a research note published last week, ANZ chief economist Warren Hogan said the bank expects the RBA to make two successive cuts to the cash rate early next year.

“ANZ expects the RBA to cut interest rates by a further 50 basis points at some point in early 2016,” Hogan said in the note

“While timing is tricky, February and March are the likely candidates,” he said.

Hogan said the low Australian dollar and the reduced level of support the housing industry is providing the economy would be key factors guiding the RBA decision.

“Two factors are likely to drive the change – waning support to non-mining sectors of the Australian economy from the housing market and continuing weakness in the Australian dollar internationally,” he said.

“RBA governor Glenn Stevens has previously said growth in the non-mining economy needs to be above average for a couple of years to eat into spare capacity. This is currently around average at best with little likelihood of improving. At the same time mining investment has much further to fall.”

While home owners and investors may be hanging out for the cuts in the hope they would see mortgage repayments go down, they may be waiting in vain according to one analyst.

Jonathon Mott, financial analyst from investment bank UBS this week said interest rates on home loans are likely to increase regardless of action taken by the central bank as banks adjust to changed requirements around their capital situations.

“Additional re-pricing may be necessary just to offset the additional funding costs the banks may face,” Mott said

“…the vast majority, or even all, of any future rate cuts are now unlikely to be passed onto borrowers,” he added..

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