More cuts needed, economist warns

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A leading economist has hinted yesterday’s rate cut may not be enough to deliver a recovery in the housing market. 

Tim Hampton, senior economist at BIS Shrapnel said that while the cut was expected, another one may be necessary before year’s end. 

“We think the Reserve Bank will likely deliver one more cash rate reduction before the end of the year, probably on Melbourne Cup day,” he said. 

“This will get interest rates to a level that will deliver the recovery in dwelling building and other domestically-focused industries and take some heat out of the Australian dollar.  

“However, if that is not the case, then further cash rate reductions around the second quarter of next year could be on the cards,” he said. 

Phil Naylor, CEO of the MFAA, said the real issue was a lack of confidence on the part of borrowers. 

“I think a cut might help, but I think the problem for the property market (with already fairly low interest rates and fairly strong employment figures) is one of lack of confidence,” he said.  

“Normally with the current economic environment we would see the property market pretty active but that has not been the case – this latest cut may make a difference.”

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