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ISCOVER
Staff Reporter
The Reserve Bank could cut the official cash rate again as early as next month, one leading economist has claimed.
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AMP ‘s chief economist Shane Oliver said the Reserve Bank will have to cut the cash rate to at least 2.5 per cent over the coming six months in a bid to stimulate the economy.
Mr Oliver believes the next cash rate will happen next month as the Board looks to enhance demand for non-mining related products and address Australia’s low inflation.
“Our assessment remains that the RBA has more work to do. The need to boost the non-mining sectors of the economy as the mining boom fades at a time when the Australian dollar remains strong and fiscal cutbacks are intensifying means the RBA will have to cut interest rates further. Post GFC caution has likely resulted in a reduction in the neutral level for bank lending rates, such that they are only just now starting to become stimulatory,” he said.
“Our assessment remains that standard variable mortgage rates will need to fall to around 6 per cent, which implies that the official cash rate will need to fall to 2.5 per cent. We expect this to occur over the next six months, with the RBA cutting again next month by another 0.25 per cent. The run of soft economic data seen in Australia over the past week is consistent with this.”
