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Interest rates about to fall, says prominent analyst

Markets now think it is a “dead certainty” that the Reserve Bank of Australia will cut interest rates by April.

The official cash rate has remained at a record-low 2.5 per cent since 2013, but both Westpac and NAB forecast last month that the cash rate would fall to at least 2.0 per cent in 2015.

SQM Research managing director Louis Christopher has now become the latest expert to forecast a rate cut this year.

Mr Christopher said a rate cut would be triggered if – as he expected – the prudential banking regulator, APRA, imposed investor lending restrictions in 2015.

“They will do this in an attempt to reduce risky, speculative investor behaviour, particularly from those who should not be taking on large amounts of housing debt due to their limited capacity to pay it back,” Mr Christopher said.

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“However, if APRA does move, it could potentially open the way for the Reserve Bank to make rate cuts, possibly more than the standard 25 basis points.

“It’s clear to most the economy is weak and, if it wasn’t for the threat of a national surge in house prices, rates would most likely be lower today.”

Mr Christopher said “the markets think it’s a dead certainty rates are going to be cut by April 2015”, while they also believe another reduction in June is likely.

“If such rate cuts happen, housing markets would be boosted throughout the course of the calendar year, with most cities recording growth at the top end of our forecast ranges,” he said.

Interest rates about to fall, says prominent analyst

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>The official cash rate has remained at a record-low 2.5 per cent since 2013, but both Westpac and NAB forecast last month that the cash rate would fall to at least 2.0 per cent in 2015.

SQM Research managing director Louis Christopher has now become the latest expert to forecast a rate cut this year.

Mr Christopher said a rate cut would be triggered if – as he expected – the prudential banking regulator, APRA, imposed investor lending restrictions in 2015.

“They will do this in an attempt to reduce risky, speculative investor behaviour, particularly from those who should not be taking on large amounts of housing debt due to their limited capacity to pay it back,” Mr Christopher said.

“However, if APRA does move, it could potentially open the way for the Reserve Bank to make rate cuts, possibly more than the standard 25 basis points.

“It’s clear to most the economy is weak and, if it wasn’t for the threat of a national surge in house prices, rates would most likely be lower today.”

Mr Christopher said “the markets think it’s a dead certainty rates are going to be cut by April 2015”, while they also believe another reduction in June is likely.

“If such rate cuts happen, housing markets would be boosted throughout the course of the calendar year, with most cities recording growth at the top end of our forecast ranges,” he said.

Interest rates about to fall, says prominent analyst
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