Interest rates tipped to fall from 2% to 1.5%

Housing markets could get a substantial jolt with not one but two interest rate cuts forecast for the next seven months.

ANZ said it expects the Reserve Bank of Australia to reduce the official cash rate from 2 per cent to 1.5 per cent – and that while pinpointing the timing of the cuts is tricky, it is “pencilling in” cuts of 25 basis points in February and May.

“Since the [Reserve] Bank cut the cash rate by 50 basis points earlier this year, we have consistently characterised the risks as being towards further monetary policy easing at some stage. We are now making that our central case,” ANZ said.

ANZ said there are two main reasons for its forecast, the first being that global growth is expected to be weaker than previously thought.

“Secondly, while current momentum in Australia’s non-mining economy is sufficient to keep the RBA content this year, we see waning support to non-mining growth from housing market activity and the sharply lower Australian dollar next year,” the bank said.

“Governor Glenn Stevens has previously noted that growth in the non-mining economy needs to be above average for a couple of years to eat into spare capacity – at best, it is currently around average with little prospect of improving much in our view.”

The Reserve Bank reduced the official cash rate from 2.5 per cent to 2.25 per cent in February and then cut again to 2 per cent in May.

[LinkedIn: Will the next movement in interest rates be up or down?]

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