RBA heading to 1% with chance of unconventional policy, NAB says

Posted by Simon Dehne on August 11, 2016 in Latest News with No Comments

RBA heading to 1% with chance of unconventional policy, NAB says
(Bloomberg) — Australia’s central bank will cut interest rates to 1 percent within a year to combat weak inflation and rising unemployment and could then turn to unconventional monetary policy, according to Alan Oster, the chief economist at National Australia Bank Ltd.

Announcing updated rate forecasts in conjunction with the release of NAB’s July business confidence and conditions survey that both showed declines, Oster is focused on risks to the economic outlook in 2018, when a lift in natural-gas exports levels off and a dwelling construction cycle turns down.

The Reserve Bank of Australia “is seemingly less worried than we thought about using up some of its valuable remaining monetary policy ammunition,” Oster said, referring to two cuts in the past four months to a record-low 1.5 percent. “The case for further cuts from the RBA appears to be mounting.”

NAB’s 1 percent rate call joins a growing group that includes JPMorgan Chase & Co., Morgan Stanley and Macquarie Bank Ltd. Prior to the Aug. 2 interest-rate cut, the lender had forecast a 1.75 percent rate through the third quarter of 2017.

Investors hit the market following RBA cut
The Reserve Bank of Australia’s (RBA) May interest rate cut looks to have pumped air into Australia’s investment market, with figures showing investment lending jumped during June.

Released this week, the Australian Bureau of Statistics (ABS) figures show that $11.78bn worth of investment loans were written during June, a 3.2% increase compared to May.

Owner occupier loans also increased of the month; with the $20.79bn written through June a 2.5% increase from May.

In total, $32.5bn worth of new loans were written during June, a 2.3% increase on May’s total.

“[The May rate cut] filtered down to borrowers and potential property buyers by way of lower home loan interest rates. These rate cuts helped make the cost of borrowing more affordable than ever – which is something Australians were acutely aware of,” Mortgage Choice chief executive officer John Flavell said.

“From today’s data we can see that Australian borrowers were keen to take advantage of the new low rate environment.

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