More cuts needed, warns economist

by Caroline Dann03 Oct 2012

A leading economist has hinted yesterday’s rate cut may not be enough to deliver a recovery in the housing market.

 
Tim Hampton, senior economist at BIS Shrapnel told Australian Broker Online while the cut was expected, another one may be necessary before year’s end.
 
“We think the Reserve Bank will likely deliver one more cash rate reduction before the end of the year, probably on Melbourne Cup day,” he said.
 
“This will get interest rates to a level that will deliver the recovery in dwelling building and other domestically-focused industries and take some heat out of the Australian dollar. 
 
“However, if that is not the case, then further cash rate reductions around the second quarter of next year could be on the cards,” he said.
 
Phil Naylor, CEO of the MFAA, told Australian Broker Online the real issue was a lack of confidence on the part of borrowers.
 
“I think a cut might help, but I think the problem for the property market (with already fairly low interest rates and fairly strong employment figures) is one of lack of confidence,” he said. 
 
“Normally with the current economic environment we would see the property market pretty active but that has not been the case – this latest cut may make a difference.”
 
Related news:
 
RBA cuts rate after three months of sitting tight

COMMENTS

  • by Kym Dalton 3/10/2012 10:53:37 AM

    Is a "recovery in the housing market" a euphemism for house price appreciation? If so, this is not the recovery we need- Australian housing is fully priced. Phil Naylor is correct, confidence is needed. Confidence that the house purchase represents value, confidence that the loan repayments are affordable nd confidence that the economy will remain robust enough to maintain employment. The sooner the Pavlovian cheer for house price appreciation as an indicator that things are improving is a thing of the past- the better for both borrowers and lenders

  • by Positive Broker 3/10/2012 11:32:27 AM

    Agree with Kim and Phil, confidence is the issue, not rates. The solution may be political, cost of living and fear of higher taxes is the issue in my view.