The moves by the major banks to increase home loan rates will give the Reserve Bank scope to cut the cash rate below 2% — and it could be as soon as Melbourne Cup day.
Savanth Sebastian, economist for CommSec told Australian Broker
that the out of cycle rate hikes will give the central bank impetus to lower the cash rate without fear of reinvigorating the housing market.
“Yes, it certainly increases the chances of a rate cut before Christmas. If anything, the Reserve Bank will now discuss the merits of another rate cut to support growth,” Sebastian said.
“I think the move by the major banks to lift interest rates is essentially a quasi-tightening of economic conditions. The national environment still remains relatively patchy and it may be that the Reserve Bank provides a degree of stimulus in the lead up to Christmas.”
According to Sebastian, the Reserve Bank could cut the cash rate to a new record low as soon as next week, when it meets for its monetary policy board meeting on Melbourne Cup day.
“I think it is really going to be a line-ball decision for the Reserve Bank at the moment,” Sebastian told Australian Broker
“The official house view for CBA
is that they won’t change, but personally I think they will potentially cut next week. The pullback in investor housing, in particular, has been quite substantial and if there is no inflation, which we should probably see in [today’s] data then it has opened the door for them to cut rates — and in the past they have moved on Melbourne Cup day.”