Economists Predict Rate Cut in November

Posted on September 24th, 2013 · Posted in News

Another interest rate cut this year is back on the agenda after the Australian dollar’s biggest one-day rally in two years.  Despite official interest rates being at a 53-year low, the Reserve Bank will be under increasing pressure to cut rates to 2.25% on Melbourne Cup Day as the rising currency threatens to strangle the green shoots recovery in the non-mining sector.

A rate cut in October has been ruled out by economists as too early but the decision in November is seen as a possibility after the US Federal Reserve’s decision earlier this week to keep the money printing presses running at full throttle.  This boosted the risk appetite in the markets and sent the currency up almost 2c to a peak of US95.29c overnight – its highest level since June.

After a sharp descent from USD in April, the Australian dollar is again showing signs that it will push back towards parity, analysts said. “The rise in the currency raises the risks of another cut,” senior economist Felicity Emmett said.  “The hurdle for another rate cut is relatively high, given the policy is already at a very stimulatory setting, although we continue to see downside basis to rates and are forecasting a possible rate cut at the November board meeting.”

The RBA has slashed official rates by 2.25% to a record low of 2.5% since this cutting cycle began in November 2011.  This has knocked an estimated $450 off the monthly repayments on the average $300,000 mortgage.

“While the RBA has reiterated that any move is not imminent, declining mining investment, restrained non-mining investment, soft consumer spending, rising unemployment, the bounce back in the Australian dollar and benign inflations indicate the risks are still tilted towards another rate cut,” AMP Capital chief economist Shane Oliver said.

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