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Two more cuts to come

12 December 2012 Reporter

Despite last week’s rate cut, more will be on the cards over the first quarter of 2013, according to a leading economist.

Head of investment strategy and economics for AMP Capital, Shane Oliver, noted in his latest weekly report that the Reserve Bank of Australia (RBA) “now appears to be finally recognising that the 'normal' level of bank lending rates may now be lower than simple historic averages would suggest, which in turn suggests they are realising that monetary policy is not as easy as they had been thinking”.

He also pointed out that expectations for the RBA governor Glenn Stevens’ speech on Wednesday are that it will “indicate the RBA retains an easing bias”.

Mr Oliver told Residential Property Manager's sister publication Smart Property Investment he expects to see another two rate cuts in 2013: “We’ll probably get another couple of cuts next year, both 25 basis points each, around February, March, April or May. This will mean the mortgage rates after this time will be down around six per cent,” he said.

“The cuts will be enough to revive the housing market, but there is this tendency, when interest rates come down, for people to say … there’s no recovery in sight.”

However, he added, when rates come down to six per cent, those with a $300,000 mortgage will see themselves paying $4,500 less yearly on their interest bill than at the peak of the cycle. This will roll over into more spending and a pick-up across the board.

“Really, the bottom line is that rates haven’t come down as much as they need to yet; they need to come down more. When we get that occurring over the year, we’ll start to see a pick-up occurring in the housing market and in the other indicators. But it’s not particularly surprising that we haven’t seen a pick-up yet, it’s still early days.”

Two more cuts to come
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