Two RBA rate cuts expected for 2019

Analysts are increasingly expecting the central bank to drop the official cash rate in the coming year, amid continued weaning in the credit and housing markets.

All industry pundits surveyed on rate comparison website Finder.com.au’s panel have stated that they expect the Reserve Bank of Australia (RBA) to hold the cash rate at 1.5 per cent when it meets this afternoon (5 March).

However, of the 17 panellists asked to predict future rate moves, 53 per cent said they expect the official cash rate to fall to 1 per cent by the end of the year, following two rate cuts from the RBA.

Graham Cooke, insights manager at Finder, said August and November were the most popular months for a forecasted cut, with every remaining month receiving a cut prediction from at least one analyst.

“Last month, I said the drop to 40 per cent (of respondents who believe the next rate move will be upwards) was the most dramatic I had seen in four years of running this survey,” he said.

“This month, that drama is elevated with just one in four believing this to be the case.

“With the housing market continuing to tumble, and other global and international economic factors looking grim, experts seem to be sure we’re looking at least one cut in 2019, if not two.”

Chief economist at My Housing Market Dr Andrew Wilson said a reduction in the official cash rate is “overdue”.

“Although recent wage data was reasonable – not good, not bad – RBA has conditioned the market to now expect a long-needed cut,” Mr Wilson said.

“This cut will attempt to revive consumption, which is now likely to also be impacted by continuing weaker housing markets.”

The RBA recently acknowledged that it’s next monetary policy adjustment could be a cut, noting that the probabilities of a rate increase and a rate reduction are “more evenly balanced”.  

“In the event of a sustained increased in the unemployment rate and a lack of further progress towards the inflation objective, lower interest rates might be appropriate at some point,” RBA governor Phillip Lowe said.

“We have the flexibility to do this if needed.”

Housing affordability sentiment hits record high

Further, according to Finder’s Economic Sentiment Tracker, positive economic sentiment in housing affordability reached its highest level recorded (54 per cent of respondents), while positive sentiment for employment (28 per cent) and wage growth (16 per cent) dropped to their lowest levels.

Finder’s Graham Cooke observed: “Potential first home buyers with a deposit saved are in an overwhelmingly advantageous position in this market. But it doesn’t all start and end with a purchase – any buyer needs to be taking a long-term view with their finances, and be shopping around online for the best possible home loan rate and features.

“As for savers, anybody who relies on their savings as a form of income, such as retirees, may soon be making far less interest on their nest egg – so now is the time to take action.”

From Mortgage Business

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