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Hot Sydney market won’t stop rate cuts

By James Mitchell
28

Record mortgage volumes and the strong demand for Sydney property will not prevent the Reserve Bank from cutting the cash rate, according to a leading economist.

Mortgage group AFG revealed last week that 52.9 per cent of all mortgages processed in NSW in March were for investors – a record high for the brokerage.

While the strong Sydney property market and continued demand from investors remains an argument against the RBA cutting rates, AMP Capital chief economist Shane Oliver believes the central bank will view it in isolation as it takes a back seat to broader economic concerns.

“Despite the pick-up in dwelling construction, the outlook for economic growth remains sub-par and the 18 per cent fall in the iron ore price since the RBA’s last meeting is adding urgency for the RBA to ease again,” Mr Oliver said.

“While the strong Sydney property market is a concern, it is clearly now very isolated and not indicative of the rest of Australia. As such, it should not hold the RBA back but rather should be dealt with via other means [such as APRA].

“We continue to expect the RBA to cut the cash rate by another 0.25 per cent ... or if not [now] then in May.”

Meanwhile, Westpac chief economist Bill Evans continues to believe there is a strong case to be made for the RBA cutting rates later today.

“We have consistently argued that the case has already been made for a second rate cut to follow the February move,” Mr Evans said.

“That was our view on December 4 last year and remains our view despite the miss in March.

“We are sticking with that April view, while recognising that the Reserve Bank could easily defer the rate cut decision until May.”

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