Economic data, including low inflation and the slow housing credit growth, indicates that the RBA will cut rates next week.
The prediction was made by Finsure managing director John Kolenda, who said, “The slowest growth rate in housing credit in more than 30 years has given the RBA ammunition to reduce its cash rate from the all-time low.”
A cut would put an end to what Kolenda describes as “an almost three-year stalemate”.
“The central bank has maintained its holding pattern since August 2016, so they will be in no rush to act until they deem it absolutely necessary, but there has been some compelling evidence for them to finally get off the fence,” Kolenda said.
In last month’s announcement the RBA said it is now “monitoring” monetary policies, which is a notable shift from its position over recent years. The inflation figures released since then (1.3% in 1Q19, down from 1.8% in 4Q18), are the primary reason a cut is expected.
NAB chief economist for markets Ivan Colhoun, has said he expects there will be two rate cuts before the end of this year, ultimately taking the official cash rate to less than 1% by 2020.
However, Kolenda isn’t entirely convinced that home owners will immediately reap the benefits of a cut.
“While I believe it would be an appropriate time and a relief to mortgage holders to reduce rates as early as next week due to all the recent domestic economic data and the continuing global headwinds, I would not be surprised if the RBA remains on the sidelines for a bit longer, although it’s a line ball decision,” Kolenda said.
This month’s rate announcement is due a mere 11 days before Australia goes to the polls and the election result is expected to impact future RBA decisions.
In Canberra, CommSec reports that home prices gained 0.4% in April and public sector job creation is "solid". Its latest report read, “With federal election fever gripping the country perhaps shrewd property buyers see the nation’s capital as a potential beneficiary of a change in government, or in fact a bigger government?”
Kolenda added, “I still expect [the RBA] to lower the cash rate over the coming months post the election. With further evidence of a slowing economy coming out of the latest RBA data showing a pronounced reduction in housing credit, it adds even more weight to reduce rates sooner rather than later.”
Although lending conditions remain challenged, Kolenda said banks could start cutting rates with immediate effect, regardless of what happens next Tuesday.
“Banks are actually in a position to lower their rates independently of any decisions by the central bank. Their funding costs have been falling and they could cut rates to offset some increases they imposed last year that were driven by rising funding costs,” he said.