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Rates to drop next month

By Staff Reporter

The best approach from the Reserve Bank is to lower domestic rates further in the following months, according to one economist.

AMP’s head of investment strategy and chief economist, Shane Oliver, yesterday stated that the most appropriate form of intervention to take pressure off the Australian dollar is to continue lowering interest rates over the later part of 2012.

Currently, he said in his latest edition of Oliver’s Insight, in terms of borrowing costs, “[interest rates] still seem too high to drive a decent recovery in domestic demand and given inflation running at the low end of the target range there is still plenty of scope to ease.”

Lowering rates, he said, is preferable to intervention in the foreign exchange market.

“A better approach is to continue focusing on boosting productivity and lowering domestic interest rates a bit further.”

Mr Oliver also predicted that the soft employment market will continue, but that it will peak at around 5.5 per cent, rather than the formerly projected 6 per cent, and with a lower rate of inflation coming out of China, the RBA is likely to reduce rates in September.

“Expect another cut in banks' required reserve ratios and in official interest rates in the next month,” he said.

Rates to drop next month
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