Interest Rate Update

Declining Housing MarketIn the latest interest rate update, the Reserve Bank Board decided to cut official cash rates by 0.25% to 1.75% at this months policy meeting. This was the first interest rate adjustment since May 2015 where rates were cut to 2%. In his statement accompanying the release Governor Glen Steven expressed the same concern facing all Central Bankers around the world, low interest rates and sluggish growth,

“While several advanced economies have recorded improved conditions over the past year, conditions have become more difficult for a number of emerging market economies.”

I make the same comment I made exactly 12 months ago, it is hard to see Australian Official rates moving higher anytime in the foreseeable future. I stick to the view that when the current housing bubble bursts and China moves closer to a hard landing, it is more likely the Reserve Bank will have to cut official rates again as domestic demand languishes.

The question still remains, can the capital inflow from China into the Australian property and construction sectors keep us out of a recession?

“by Shane Clinton”

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