The Reserve Bank of Australia could cut the official cash rate by 50 basis points when the Board meets tomorrow, Residex chief executive John Edwards has claimed.
While national house prices grew slightly over the last quarter, Mr Edwards said without stimulus in the form of an interest rate cut, values would steadily decrease again.
“I would not be surprised to see the RBA cut rates by 0.5 per cent at its May Board meeting. In any event, a 0.25 per cent reduction looks all but certain,” Mr Edwards said.
“There has been comment that the unemployment rate (5.2 per cent) could affect the likelihood of a rate reduction given that it has not been increasing. However, there are some worrying trends in the employment data and I believe the RBA will not be blind to these issues.
“What appears to be happening is that the unemployment rate may only be remaining steady as a consequence of people taking up part-time employment and this won’t be delivering quality levels of income.”
Mr Edwards said the Reserve Bank would more than likely overlook the unemployment situation and instead focus on the latest CPI results.
“In the latest release, CPI came in at 0.1 per cent for the March quarter, unchanged from the December 2011 quarter. It rose 1.6 per cent through the year-ending March 2012, compared with a rise of 3.1 per cent to the year-ending December 2011,” he said.
“Clearly, CPI is now at the lower end of the RBA’s target range and, given its objective of achieving a 2 to 3 per cent CPI outcome, a rate cut is looking certain.”