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Analysts Say Additional Interest Rate Cut Unlikely This Year

Analysts Say Additional Interest Rate Cut Unlikely This Year
May 29, 2015 By Imran Valibhoy

Analysts from multiple institutions are predicting that no further interest rate cuts will happen in Australia this year. 12 economist surveyed by the Australian Associated Press said the cash rate would remain unchanged in the medium-term, with nine of the economist saying no interest rate cut would happen this year. On 5 May, the Reserve Bank of Australia cut the cash rate to a historic low of 2.0 per cent. JP Morgan economist Stephen Walters said it was almost certain that the central bank would not lower interest rates further anytime this year.

As the Australian economy faces headwinds from the waning commodities market, the residential housing market has continued to shine. The RBA noted concerns that an interest rate cut would further the risks in the housing market. Other Australian regulators have put policies in place to mitigate the rapidly growing property investment loans in the country. "Low interest rates are needed to support the rebalancing of growth towards the non-mining sectors and encourage the Australian dollar to fall," said HSBC chief economist Paul Bloxham. "At the same time, low rates are also stoking a housing price boom in some cities, particularly Sydney."

The sentiment from economists contradicts the markets reaction to data released by the Australian Bureau of Statistics on Thursday. Figures from the ABS showed capital expenditure fell twice as quickly as predicted in the March quarter. Australian shares were down on the day, but partially recovered after the release of the data on speculation that an interest rate increase might be more likely. But the market pricing for a June interest rate cut has remained unchanged at four per cent.

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Imran Valibhoy Author: Imran Valibhoy May 29, 2015

Since Joining the firm in 2006, Imran has worked on a range of M&A and Capital Market transactions in the natural resources, mining as well as projects in the renewable energy sector. Prior to joining Wise-owl, Imran worked at Euroz Securities in Perth, aiding in the advisory and valuation of companies in the mining and industrial sectors in Australia. Imran has a Masters in Banking & Finance from City University's Class Business School in London and a Bacheloor degree in Commerce from UWA.

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