Despite the current interest rate environment sitting at ‘historic lows’, a further rate cut by the Reserve Bank of Australia (RBA) is expected, according to one chief economist.
Speaking about the cash rate cut earlier this month, AMP Capital's head of investment and chief economist Shane Oliver told Residential Property Manager's sister publication, Smart Property Investment, that despite rates being at a very low point, “we’ll probably be looking to at least one more rate cut this year”.
Mr Oliver expects that one 25 basis point cut, bringing the cash rate to 2.50 per cent, will be seen over the next two months.
The reason we’re seeing such low interest rates is due to our inflation rate being lower than previous times, he said, noting that the economy is still showing strength.
“In terms of the Australian dollar, we know that if it comes down sharply there’s less pressure on the Reserve Bank and they most likely wouldn’t cut again,” he said.
“However, if it drifts down slowly, which I believe more likely, they’ll still be encouraged to cut,” he said, pointing to one of the main factors of interest to the Reserve Bank at present.
The exchange rate was specifically flagged in the RBA’s statement by governor Glenn Stevens on monetary policy.
Mr Stevens indicated that the exchange rate “has been little changed at a historically high level over the past 18 months, which is unusual given the decline in export prices and interest rates during that time. Moreover, the demand for credit remains, at this point, relatively subdued.”
The RBA board will meet again on June 4.