Powered by MOMENTUM MEDIA
subscribe to our newsletter

November rate cut likely to be the last

A senior economist has discussed the potential ramifications of too low an official cash rate, and predicted that if the RBA cuts the rate in November, “it would probably be it”.

Speaking to Mortgage Business, AMP Capital chief economist Shane Oliver pointed to ongoing debate among industry pundits about the ramifications of lowering the ‘official cost of borrowing’ to lower levels.

“You can create financial instability because people will be motivated to take on more debt than they otherwise should have, and there is a risk that at some point they might default on that debt, when interest rates start rising or property prices take a tumble,” Mr Oliver explained.

“That’s the main risk associated with ever-lower levels for interest rates for Australia, and that’s also a source of debate in the US, Japan, Europe and other parts of the world.”

Although he predicted that the RBA would likely cut the official cash rate to 1.25 per cent next month, when it reviews its economic forecast after the release of September quarter inflation data, Mr Oliver highlighted that it would be “a close call”.

Advertisement
Advertisement

“If you look at growth in Australia it’s actually been quite reasonable,” he noted. “We’ll get to the point where the RBA will conclude that they’ve already done enough to help push inflation back up and push the currency down, so I actually think a cut in November or a cut to 1.25 per cent would probably be it.”

“If growth in Australia was a lot weaker, then I suppose there would be an argument to keep going, but it’s not the case — growth in Australia is actually pretty strong,” he concluded.

Mr Oliver emphasised that Australia is among the strongest countries in the world compared to other developed countries.

“There aren’t many countries growing at 3.3 per cent,” he said. “Certainly not the US, Europe or Japan, so our situation is radically different to those countries — we don’t need to do zero or negative interest rates.”

[Related: RBA ‘shouldn’t just rely on low interest rates’ to assist economy]

PROMOTED CONTENT


November rate cut likely to be the last
mortgagebusiness

Are you a new-to-industry broker in the process of growing your business? Then there’s some great news: The Adviser’s New Broker Academy is back in 2021 and will provide you with essential insights into cutting-edge tools, strategies and processes to fast-track to success. Don’t miss your chance to attend. To secure your FREE place, visit newbroker.com.au now!

Latest News

The major bank has expanded its SME Recovery Loan Scheme offer to small businesses impacted by the pandemic, effective 1 October. ...

CoreLogic has reported that the preliminary clearance rate recorded across the capital cities last week was the highest since late March 202...

The major bank has once again extended its cashback and drawdown deadlines. ...

Join Australia's most informed brokers

Do you know which lenders are providing brokers and their customers with the best service?

Use this monthly data to make informed decisions about which lenders to use. Simply contribute to the survey and we'll send you the results directly to your inbox - completely free!

How long do you think it should take to discharge a mortgage?

Website Notifications

Get notifications in real-time for staying up to date with content that matters to you.