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Rate cut forecast for next year

There is an increasing likelihood that the Reserve Bank of Australia will cut rates next year, according to global asset manager AllianceBernstein.

Senior economist Guy Bruten said the view that rates would rise in 2015 underestimates the probable collapse of commodity prices in Australia, which is likely to be “deeper and broader” than expected.

“The risks for the Australian economy are tilting to the downside in our view, and, far from increasing interest rates, there’s a growing prospect that the Reserve

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Bank may well need to cut them again,” he said.

“It’s important to remember that we are only at the very start of the adjustment of capital spending in the mining sector – the big falls are yet to come.”

Mr Bruten said that increasing concern over the impact of the commodities downturn and subdued housing growth are two of four factors that could potentially force the Reserve Bank to cut rates next year.

The other factors are unemployment, which Mr Bruten expects to track higher, and low inflation helped by low wage growth.

While high house prices might be considered an inflationary threat, Mr Bruten said the Reserve Bank is likely to use macroprudential tools rather than higher interest rates to counter them.

“We think the Aussie dollar should be a lot lower than it is, but the adjustment process is being held up by global forces,” he said.

“That puts the onus back on some more monetary easing.”

Rate cut forecast for next year
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