Door opening for multiple interest rate cuts in 2015

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The RBA looks set to cut rates again in April and even further as the year progresses to a level below 2 per cent. 

With the price of iron ore seemingly in freefall the Reserve Bank looks like having to implement multiple rate cuts in 2015.

The Australian Financial Review today said that RBA policy makers could move as early as next week to keep down pressure on the Australian dollar and to support the economy, which is suffering from falling commodity and energy prices. 

The falling commodity prices are playing havoc with the federal budget, which is struggling with deficit. 

New figures out show the economy’s growth is expected to be too slow and weak to stop the growth in unemployment, with some economists tipping it to rise above 7 per cent. 

If rates dip below 2 per cent it takes the RBA into unchartered waters, they’ve never seen such lows, and it would continue to build fears of a dangerous asset price bubble in property. 

It’s not only residential property that’s a concern, last week the RBA also voiced concerns about the commercial property market, which was a sector hurt badly in the last recession in the early 1990s. 

There’s ongoing doubt about if and when the economy might show signs of recovery in the non-resources sector amid the current low confidence levels, while spending on resources projects is expected to halve over the next two years.

Chief economist at Barclays Australia, Kieran Davies, told the Australian Financial Review that he has brought forward his prediction of a rate cut to April. 

“The RBA decision appears prompted to us by further weakness in commodity prices,” he said.

Mr Davies said the Australian dollar was around 4 per cent overvalued so far in 2015.


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