Is there a chance of an interest rate cut?

While many economic experts have been forecasting an interest rate hike for 2017 or 2018, some believe there’s a higher probability that the next movement will be downwards.

According to Business Insider, Sally Auld, chief economist and head of Australia and New Zealand fixed income and FX strategy at JP Morgan, is of the belief that there is more chance that the RBA’s next movement will be down as opposed to up.

Auld is concerned about the strains on Australia’s household sector, one of the largest parts of the Australian economy.

Australians are already facing a tough time with house price growth, rising utility prices and flat wage growth and an interest rate hike would add to that burden.

Given the concerns the economy is currently facing, Auld says that while JP Morgan predicts that the cash rate will remain at its current level of 1.5 per cent for the foreseeable future, “we still view rate cuts as more likely than rate hikes”.

Auld’s views seem to be supported by the minutes from the RBA’s October board meeting where it was noted that local economic data provided little data to support a rate rise any time soon.

The board noted that while there had been a pick-up in GDP figures, one of the biggest reasons to raise interest rates – growing house prices – had begun to slowdown, particularly in the bustling Sydney market.

Another reason why the board may have turned to an interest rate hike was pressure from interest rate rises seen in other developed countries, however the latest minutes report noted that this will have little to no influence on domestic interest rates.

While nobody knows for certain what the next interest rate movement will be, it is looking likely that they will remain on hold for a while longer at least, taking some of the pressure off of mortgage holders who may have been worried about an impending rise.

The official cash rate has been on hold at the historic low of 1.5 per cent since August last year and it’s looking likely that it will remain there at next week’s RBA meeting.

 

Sources:

https://www.businessinsider.com.au/australian-interest-rates-jp-morgan-rba-forecast-2017-10

https://www.mybusiness.com.au/growth/3541-interest-rates-on-hold-for-foreseeable-future?utm_source=MyBusiness&utm_campaign=18_10_17&utm_medium=email&utm_content=2

https://www.rba.gov.au/monetary-policy/rba-board-minutes/2017/2017-10-03.html

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