Case building for rate cut, says analyst

by Julia Corderoy07 Jul 2015
Interest rates are set to remain on hold at 2% when the Reserve Bank board meets today, but one analyst says there is a strong case building for a further 25 basis point cut before the year is out.

According to an analysis of key economic indicators by Rate City, 13 of the 18 indicators point towards rates remaining on hold in July, while five suggest a further rate cut.

Peter Arnold, financial analyst at RateCity, says another rate cut is likely before Christmas.

“The case is building for another rate cut and we expect to see a further 0.25 percentage points wiped off the cash rate before Christmas,” he said.

“Each month we look at a wide range of factors that influence the movement of interest rates and what that means for people; whether they have a home loan or are trying to save.”

“This month twice as many indicators point to steady rates as do for a rate cut so we're confident that we'll see them unchanged for at least a few months to come,” he said.

High house prices and soaring household debt were among the key indicators that suggest the RBA will leave rates unchanged today, according to Arnold. Consumer confidence also remains high and inflation is within the target band the RBA aims for. 

“Consumer confidence in Australia is high but could be impacted by the economic situation in Greece, which could lead to some financial panic in global markets, opening the door for a rate cut here,” he said.