Cash rate cut is coming, says mortgage veteran

by Julia Corderoy02 Dec 2015
It was no surprise to see the Reserve Bank of Australia (RBA) leave the cash rate unchanged yesterday, according to one industry veteran, but a cash rate cut is coming soon.

1300HomeLoan managing director John Kolenda said it came as no surprise to see the cash rate held steady at 2% yesterday, however a gloomy economic outlook means a further rate cut is highly likely in the first half of 2016.

“The RBA has been a walking a tightrope leaving rates on hold since May this year due to the mixed economic data,” he said.

“The central bank will no doubt keep a close eye on the economic data over the next few months.

“But the slowdown in China and its impact on the Australian economy, the slump in the resources sector and the contraction in the Sydney and Melbourne real estate markets are all pointers to the likelihood of another rate cut next year.

“There is also very little evidence of the economy transitioning from a mining to services or technology innovation which would provide the necessary economic growth.”

According to Kolenda, a major issue for the RBA to consider is that lower rates have become the “new normal” in the post global financial crisis (GFC) world, with consumers likely to be highly sensitive to any future increases in rates.

“The GFC has changed society and consumers are generally more sensitive to economic conditions and what is happening with interest rates, which the RBA hasn’t increased for more than five years,” he said.

“We have seen a dramatic change in consumer behaviour as they prefer to save money and spend wisely versus the credit spending frenzy for the decade before the GFC.”
 

COMMENTS

  • by Peter Reber 5/12/2015 9:33:43 AM

    I disagree that a RBA cash rate cut is coming. RBA is happy to sit in a flat cash rate at 2% to allow room down the track in 2016 if a rate cut is required to boost the economy. Rate cuts today just to not have the same impact as in the past. The economy is tracking slowly and inflation under control at the moment with low wage growth. Flat rates throughout 2016 the most likely. It is important also to let the real estate market unwind as it has now passed peak of cycle. RBA would not like to impact this.