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Feb rate cut unlikely: borrowers

Feb rate cut unlikely: borrowers

by Simon Parker 0 comments

Staff Reporter

Homeowners responding to a survey by mortgage brokerage Loan Market Group do not expect the Reserve Bank of Australia (RBA) to cut the official cash rate when the board meets next week.

According to a survey, 55 per cent of respondents believe the cash rate will remain at its current level of three per cent.

The RBA is due to make its next rate decision on Tuesday, February 5. Its most recent decision, in early December, saw the official cash rate cut by 0.25 per cent to three per cent.

Of the 452 respondents, 35 per cent tipped the RBA to lower the official rate by 25 basis points, while nine per cent thought the bank would cut by as much as half a percentage point.

“It’s very likely the RBA will apply the same 'wait and see' approach it demonstrated throughout 2012 at its meeting next week," Loan Market Group spokesperson Paul Smith said. "Most economic indicators are within targeted ranges and it appears homeowners aren’t convinced the RBA has enough evidence to lower interest rates.

“The December rate cut certainly did help inject some confidence into areas of the economy and help spending and consumption over the holiday period. But like most interest rate movements, it takes time to assess the full impact as more data becomes available.”

Mr Smith said these results could indicate that households do not expect the economy to grow on the heels of RBA rate cuts alone.

“Households have seen four rate cuts in the past year yet housing finance remains flat and sentiment remains quite cautious. If the government is looking to promote confidence in the economy it should look to ease concerns about the two-speed economy or home building,” he said.

AMP chief economist Shane Oliver said last week that 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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Feb rate cut unlikely: borrowers
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