Rate Cuts Imminent: AMP

13 Sep 2012 - Staff Reporter from http://www.rebonline.com.au/

 The Reserve Bank could cut the cash rate as early as next month, one economist has claimed.

AMP’s chief economist Shane Oliver said while it was not surprising to see the Reserve Bank leave the official cash rate on hold at 3.5 per cent last week, the Board is starting to get more concerned about the slowdown taking place in China and the sharp falls in commodity prices.

“Our assessment is that with the mining boom losing momentum led by sharp falls in iron ore prices and recent monthly indicators such as retail sales, building approvals and employment growth softening anew it’s likely that growth will slide below trend highlighting the need for lower interest rates,” Mr Oliver said.

“Standard variable mortgage rates at 6.8 per cent are still well above the six per cent or so levels that were required to generate a decent recovery through the last two easing cycles into 2002 and 2009.

“Reflecting these considerations we expect the RBA to cut the official cash rate to 2.75 per cent in the next six months, starting with a 0.25 per cent cut in either October or November.”

Raine & Horne CEO Angus Raine agreed that a rate cut looks likely.

“In the wake of last Tuesday’s announcement, financial markets have fully priced in the likelihood the RBA will cut interest rates in what is historically the most active quarter for monetary policy moves,” he said.

The company said that, in the last decade, the RBA has used its October board meeting twice to adjust the cash rate prior to the release of the October CPI data, while it has tweaked rates seven times in November.

“The November meeting is considered the most popular month for the RBA to make a move as this gives monetary policy adjustments time to impact the economy, particularly as the board doesn’t meet in January,” Mr Raine added.