Two more rate cuts on the cards

Steven Cross

Borrowers can expect at least two more rate cuts by the Reserve Bank of Australia by the end of the 2012.

The latest RBA minutes, released earlier this week, said that market pricing currently suggested just under an "even chance of a reduction in the cash rate at the current meeting, with at least two reductions expected over the remainder of the year".

The minutes also indicated that any rate cut would be closely aligned with any changes to inflation data, which will be released next Tuesday.

Chief economist at AMP Shane Oliver told Real Estate Business' sister title, The Adviser, that even if inflation rises by more than expected, the RBA shouldn’t rule out a rate cut.

“A 0.6 per cent rise would give you an annual rate of 2.1 [per cent] so that would be at the low end of the target [of 2.5 per cent]. So numbers around there will be considered benign.

“Alternatively 0.7 [per cent] would probably still be okay. If you get to around 0.8 [per cent] it becomes a bit more debatable.

“If we do get a 0.8 per cent number then you can’t rule out a rate cut, but the chance of it occurring would be substantially less.

“I think it would be a mistake to rule it out with those numbers and would be a mistake for the Reserve Bank not to cut, because I think there will be an easing on inflation down the line in response to soft demand in the economy.

Steven Cross

Borrowers can expect at least two more rate cuts by the Reserve Bank of Australia by the end of the 2012.

The latest RBA minutes, released earlier this week, said that market pricing currently suggested just under an "even chance of a reduction in the cash rate at the current meeting, with at least two reductions expected over the remainder of the year".

The minutes also indicated that any rate cut would be closely aligned with any changes to inflation data, which will be released next Tuesday.

Chief economist at AMP Shane Oliver told Real Estate Business' sister title, The Adviser, that even if inflation rises by more than expected, the RBA shouldn’t rule out a rate cut.

“A 0.6 per cent rise would give you an annual rate of 2.1 [per cent] so that would be at the low end of the target [of 2.5 per cent]. So numbers around there will be considered benign.

“Alternatively 0.7 [per cent] would probably still be okay. If you get to around 0.8 [per cent] it becomes a bit more debatable.

“If we do get a 0.8 per cent number then you can’t rule out a rate cut, but the chance of it occurring would be substantially less.

“I think it would be a mistake to rule it out with those numbers and would be a mistake for the Reserve Bank not to cut, because I think there will be an easing on inflation down the line in response to soft demand in the economy.

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