Cash rate cut more likely, indicators show

Laine Gordon
Aug 31, 2015( 2 min read )

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The likelihood of a further cash rate cut in 2015 is growing, and lower rates may be realised as soon as September, a new analysis of key economic indicators shows.

RateCity analysed more than 20 core economic indicators – global and domestic – in an effort to understand what will influence the RBA’s cash rate decision when its board meets tomorrow. Among those is the economic situation in China, speculation that the U.S. Federal Reserve will lift its rates, plus the flagging Australian Securities Exchange and a property market on the boil.

Peter Arnold, financial analyst at RateCity, said the odds for a rate cut were growing, and that lower rates could be in play as early as tomorrow.

“With the events of the past fortnight – the economic situation in China and how that had fed into the Australian share market’s mini crash – the chance of a cash rate cut has increased significantly,” he said.

“Whether the RBA cuts on Tuesday is very hard to say, while it looks like a cut is the likely outcome, it’s all about the timing. I think we’ll get a cut this year and I’m betting on a cut by the time Melbourne Cup runs in November.”

Beyond the global economic pressures, a buoyant domestic housing market will influence the RBA board’s rate decision tomorrow afternoon, he said.

“While on one hand the lenders are looking to put the brakes on investor lending, the flipside of that is that owner-occupiers are being given hotter deals on home loan rates in some cases,” he said.

“What that means is that the RBA has less need to cut because owner-occupiers are getting better deals on home loan rates without the need for the RBA’s prodding. But on the other hand, if the RBA board wants to cut the cash rate, they can do so safely because a cut is unlikely to be passed on by the lenders to investor borrowers.”

A 0.25 percentage point cash rate cut, if passed on in full by lenders, would see the average standard variable home loan rate fall from 4.81 percent to 4.56 percent. That would reduce monthly repayments by $45 on a $300,000 home loan repaid over 30 years.

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