Reserve Bank will be reluctant to cut rates further, says major

by Julia Corderoy18 May 2015
It is unlikely that the Reserve Bank will cut interest rates further, says the global head of research at a major bank, but we could start to see them rising as early as next year.

Speaking at the NAB Budget Breakfast last week, Peter Jolly, global head of research at NAB said that the budget will unlikely have a big impact on interest rates, unlike last year’s budget which rocked consumer confidence. 

“I don’t think the budget will have a great impact on where interest rates are set. The economy has been underperforming, as we know, the unemployment rate has been rising. [The RBA] has cut interest rates a couple of times this year to add further support. But what they are very keen to do is to provide further support for business by providing a stable platform.”

According to Jolly, the Reserve Bank will be reluctant to cut the official cash rate below 2%. However, we could start to see interest rates rising by late next year.

“I think they are very reluctant to keep cutting interest rates at this point; there are some warning signs for them in terms of the rapid growth in house prices. We expect that they will sort of sit there at 2% for quite a period actually,” he said.

“If they are going to do anything in the next six to twelve months, it’s probable that they may need to cut interest rates again, but I don’t think they are really keen to do that. However, if the economy is weak, they may still need to do that.

“But in the longer term, we think that towards the end of next year we will start to see interest rates rise again.”