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Interest rate cut likely in 2015: economist

By Staff Reporter
166

A property market expert and economist believes interest rates may be cut even further in 2015, despite numerous commentators saying the next rate movement will be upwards due to a heated property market.

On Tuesday, the central bank left the official cash rate on hold at 2.5 per cent for the 15th consecutive month.

Despite rates being at 60-year lows, Domain Group senior economist Andrew Wilson said they may get even lower.

In contrast to the 32 experts surveyed by mortgage comparison website finder.com.au, who predicted the next rate movement will be upwards, Dr Wilson believes a cut is more likely.

"I think the case is certainly stronger for lower interest rates than higher interest rates at the moment given rising unemployment, falling building approvals, a volatile stock market, a still too-high dollar and falling house prices," he told Fairfax Media.

"We will have to start seeing an improvement in the economy, and certainly no more deterioration in those key indicators, to maybe offset a cut in interest rates some time in 2015."

Dr Wilson said if the jobless rate increased, the Reserve Bank would move to cut rates as early as March next year.

But a majority of experts don't believe the central bank would risk further stimulating the property market by dropping rates.

Instead, according to the finder.com.au survey, the most likely outcome is that rates will lift in August next year.

Bank of Sydney’s deputy chief executive Steven Pambris said economic factors remain weak, but with current pressures on residential prices, especially in Sydney, reduction will not be considered due to fear of fuelling the residential bubble further.

“Rates will remain steady for some time,” he added.

HSBC chief economist Paul Bloxham said growth is still below trend, the labour market is still loose and inflation is still well contained.

“So they don't have any reason to think about hiking, but at the same time I can't see [the RBA] cutting rates while the housing market is still booming,” he said.

Meanwhile, AAP economist Garry Shilson-Josling said the housing market is too strong to allow a cut but the rest of the economy is too soft to cope with an increase.

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