Three leading economists have tipped the next rate move to be down, not up

Three of the nation’s leading economists say 2019 will see further interest rate cuts from the RBA from their record-low 1.5 per cent.

AMP Capital’s Shane Oliver, Industry Super’s Stephen Anthony and Market Economics’ Stephen Kakoulas spoke to Property Observer about how they saw interest rates panning out this year.

“The Reserve Bank is conflicted,” Mr Anthony said.

“It knows the economy is slowing and that risks are building in asset markets, especially east coast property,” he told Property Observer.

“With the background being declining residential house prices, especially in Sydney and Melbourne, the wealth effects will be significant, likely reducing household consumption growth to at or below 2 per cent in 2019.”

Dr Shane Oliver said that he thinks the RBA is becoming more open to the idea that the next move on interest rates might be down and not up.

“It has not turned dovish yet but it is getting less hawkish and a bit more open to the view that the next move in rates may not be up.”

A recent survey by Nine Entertainment polled nearly 40 economists and most thought the RBA would raise the official cash rate by the middle of next year, but most of them were forecasting a rise in 2018 – a rise that never came.

Mr Oliver said the RBA would cut rates not to stifle further property price falls but to help households that carry a mortgage.

To have any real impact the central bank would need to cut rates twice so Mr Oliver says the cash rate could be cut to 1 per cent seeing as property has slumped in Melbourne and Sydney.

Stephen Kakoulas said the Reserve Bank was wrong to think stable interest rates would encourage economic confidence.

“The very slight change in tone in recent times is a belated realisation of this error and if, as seems likely, inflation remains outside its target range and its rosy forecasts growth and unemployment fall flat, it will, pragmatically, change tack,” he told Property Observer.

The RBA will announce its initial monetary policy for 2019 in February.


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