Top economist calls for 2015 rate cut

Record-low interest rates will probably be needed to keep the economy on track, according to Shane Oliver.

The official cash rate has been left at a record-low 2.5 per cent since 2013, largely to help stimulate a sluggish economy.

Mr Oliver, who is chief economist of AMP Capital, said non-mining activity is likely to continue to pick up pace during 2015.

However, falling national income and subdued confidence mean the economy will probably need further stimulus from a rate cut and a lower Australian dollar, he said.

“If this occurs, then improving conditions in sectors like housing construction, consumer spending, tourism, manufacturing and higher education should see GDP growth move up to around three per cent.”

Mr Oliver said the Reserve Bank of Australia might need to make aggressive rate cuts if non-mining economic activity fails to pick up this year.

Commercial property and infrastructure are likely to benefit from the ongoing search by investors for yield, while Australian house prices are likely to see a continued upswing on the back of low interest rates, Mr Oliver said.

Mr Oliver said the top thing to look out for in 2015 is the deteriorating Chinese property market, which was down 10 per cent in the first 10 months of 2014.
Meanwhile, inflation in Australia is likely to remain benign, Mr Oliver said.

However, cash and bank deposits are likely to continue to provide poor returns, with term deposit rates running around three per cent, he said.

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