Cash rate to fall further this year

Despite new data showing iron ore prices are on the rise, one economist believes there are still plenty of reasons for the Reserve Bank (RBA) to cut the cash rate this year.

According to AMP chief economist Shane Oliver, the benign December quarter inflation reading in Australia leaves plenty of room for cash rate cuts to stimulate growth in the face of the loss of momentum in mining investment.

“While a February rate cut is far from assured as the RBA may decide to take a raincheck in the face of the improvement in global conditions and the rebound in the iron ore price, our assessment remains that sub-par response in the economy after more than a year of rate cuts indicates that bank lending rates are still too high in the face of consumer and business caution and the strong Australian dollar,” Mr Oliver said.

“They will still need to fall further over the next six months to boost growth in areas of the economy like housing and retailing, as growth in mining investment subsides.

"As such a cut in the cash rate to 2.5 per cent still seems likely over the next six months."

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