RBA may not be done with rate cuts

by Adam Smith30 Jul 2014
A finance expert has claimed that the RBA may actually issue one more rate cut before the official cash rate begins to move higher.

While most economists have tipped a period of stability followed by monetary tightening next year, Goldman Sachs Asset Management bond expert Phil Moffitt has claimed the Reserve Bank may actually cut the cash rate below its current 2.50%, Fairfax has reported.

Speaking to a Goldman Sachs client conference in Sydney, Moffitt said the stubbornly high Australian dollar could combine with falling inflation to force the RBA to act. According to Fairfax, Moffitt said low interest rates in the United States have kept the Australian dollar high.

“The game plan has been the RBA to hold rates stable, and accept the currency is overvalued, in anticipation of the Fed moving, but the more the Fed works to pacify market expectations of a rate rise, the stronger the local currency gets and the harder it is for the RBA to manage," Moffitt said.

The strength of the Australian dollar could combine with an expected drop in inflation due to the abolition of the carbon tax to put pressure on the RBA to cut rates.

"They may take the opportunity later in the year with inflation coming down because of the [repeal of the] carbon tax and the soft domestic economy to cut rates. That would come at the similar time that we expect US treasury rates to rise,” Moffitt said.