AU Interest rates tipped to drop as low as two per cent by early next year: Westpac
Property Here - Sunday, June 02, 2013
RBA Govenor Glenn Stevens during an address to members of the Association of Australian Business Economists at the Four Seasons Hotel in Sydney. Source: News Limited
INTEREST Rates are tipped to stay on hold this week when the Reserve Bank board meets as the Australian dollar's descent below parity takes some of the pressure off struggling parts of the economy.
But concerns about the global outlook will push the central bank to lower official interest rates at least three more times over the next 12 months from its current setting 2.75 per cent to a record low of 2 per cent, Westpac chief economist Bill Evans said.
The country's most successful interest rate tipper in recent years said the medium term case for lower interest rates is clear even if the RBA board is likely to stay on the sidelines tomorrow (TUES).
"We retain our position that the terminal cash rate will be 2 per cent, with single moves in August, late 2013 and early 2014," Mr Evans said.
The futures markets are now pricing in a less than one-in-five chance of rate cut on Tuesday while a move in August rated as a 76 per cent probability.
The Australian dollar's almost 7 per cent depreciation from US$1.03 to US95.7c since the RBA board meet last month is regarded by most economists to have helped rebalance the economy.
HSBC chief economist Paul Bloxham said that while a bumpy ride is still a risk a lower Australian dollar will make the transition away from the mining boom smoother and keep the RBA on hold this month.
If the currency stays below parity that may be the end of this rate cutting cycle, he said.
"The depreciation of the Australian dollar supports local growth and shifts the balance of risks on inflation to the upside," Mr Bloxham warned.
But AMP Capital chief economist Shane Oliver is urging the RBA to follow-up May's 0.25 per cent reduction with another cut this month.
The Australian dollar has not dropped far enough yet and while it is a "close call" Mr Oliver said the central bank should act quickly.
"Forward looking jobs indicators are soft and the toughish budget and Ford's decision to quit manufacturing seem to have added to the sense of gloom surrounding the Australian economy," he said.
"As a result with low inflation providing plenty of scope to ease the RBA should act again on its easing bias and on balance we think it will."
He is tipping the Australian dollar will drop back down to around US80c over the next few years as commodity prices weaken and the US economy strengthens.
Read more: http://www.news.com.au/money/banking/interest-rates-tipped-to-drop-as-low-as-two-per-cent-by-early-next-year-westpac/story-e6frfmcr-1226655463078#ixzz2V7Otn9F9