Worsening financial troubles in Greece and other parts of the world could cause the official cash rate to fall this year, according to a survey by one of Australia’s biggest comparison websites finder.com.au.
The finder.com.au Reserve Bank Survey, which is the biggest survey of its kind in Australia, found that all 33 experts and economists on the panel unanimously expect the cash rate will remain on hold at the RBA’s monthly Board meeting on Tuesday.
Many of the experts surveyed cited reasons for a rate pause including the Reserve Bank continuing to maintain a ‘wait and see’ approach as the recent rate cut in May has had little impact as yet on the economy. The improved unemployment rate, higher housing costs as well as financial pressures from overseas were other factors associated with the Reserve Bank’s expected decision for a rate pause.
However, almost two out of five of the expert’s surveyed (38 percent or 12 experts) are expecting the cash rate to fall by the end of the year, which could be as early as next month. Out of the 12 who expect the cash rate will fall this year, five are expecting a drop in August or September while the remaining seven are expecting to see the cash rate fall in the last quarter of 2015.
Two experts are forecasting the cash rate will rise this year – Peter Boehm, onthehouse.com.au and Mark Crosby, Melbourne Business School.
The majority of experts (56 percent or 18 experts) are expecting the cash rate to start rising next year, while 13 experts believe the cash rate will increase after 2016. The average forecast for when the cash rate will rise is the last quarter of 2016.
Michelle Hutchison, Money Expert at finder.com.au, said first home buyers will see greater pressure to enter the market if interest rates fall further this year.
“The latest global economic uncertainty has thrown a spanner in the works for our local economy, as the Reserve Bank could now look to minimise the impact by reducing the cash rate this year.
“However, this could lead to further pressure on the housing market, as lower interest rates could fuel further demand for investors and refinancers, leaving first home buyers behind.”
According to the Survey, almost four out of five experts (79 percent or 26 experts) believe house prices may keep rising this year, with one expert expecting house prices may start to fall – Michael Witts, ING Direct.
The number of first home buyer home loans financed in April fell by 778 (9.2 percent) compared to March, from 8,441 in March to 7,663 in April. However it was slightly higher than April 2014, with 258 more first home buyer loans financed in April 2015.
“Even if interest rates fall further this year, it’s likely that they won’t stay lower for long, as our survey found that rate hikes are around the corner.
“Borrowers who are planning to enter the market, buy an investment or refinance need to ensure they factor in higher costs for repayments rather than the other way around, or face financial stress in the near future,” said Mrs Hutchison.
Here is what some of the experts had to say in the finder.com.au Monthly Reserve Bank Survey:
Shane Oliver, AMP: “Not enough has happened since the last meeting and the Reserve Bank would probably prefer to review its forecasts (which will happen at the August meeting) before easing again. I see a 50/50 probability of another cut given the outlook for sub trend growth.”
David Bassanese, BetaShares: “There are existing house price pressures, and the Reserve Bank has only cut recently. We believe they will wait to see extent of budget boost.”
Chris Caton, BT Group: “The Bank can take some more time to assess the effects of what it has already done.”
Michael Blythe, Commonwealth Bank: “The Reserve Bank is in “wait and see” mode while they assess incoming data, such as the next Consumer Price Index due at the end of July.”
Paul Bloxham, HSBC: “We’re still watching and waiting to see the impact of the 50 basis points of cuts delivered in the first half of this year.”
Michael Witts, ING Direct: “Most recent economic data is broadly positive and the past rate cuts are working their way through the economy.”
Lisa Montgomery, Mortgage & Consumer Finance Expert: “Although there is quite a bit of key data to be released week commencing June 29, it’s not likely that the Reserve Bank will make a material shift in the official cash rate at its July meeting. As it struggles to rebalance the economy and force the Australian Dollar lower it continues to face a challenge in relation to the Sydney property market. The ABS building approval statistics and the Corelogic home price index should make interesting food for thought for the board in the coming week.”
Alan Oster, NAB: “The Reserve Bank is taking time to see impact of past moves.”
Noel Whittaker, QUT Business School: “The outcome of recent cuts is still unsure.”
Bill Evans, Westpac: “Overall, the minutes confirm our assessment that evidence of weak consumer spending, a deteriorating outlook for business investment and a fall-back in consumer sentiment will have come as significant disappointments for the Bank. The key concluding paragraph from the Reserve Bank June cash rate minutes noted that “information on economic and financial conditions to be received over the period ahead will inform the Board’s assessment of the outlook and hence whether the current stance of policy will most effectively foster sustainable growth and inflation consistent with the target.”
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