Interest rates heading down?

April 14, 2015

The RBA continues to monitor economic data as strong housing activity in the eastern cities clouds the true performance of the broader economy. Nationally,  GDP growth and income have moved below trend while commodity prices have fallen significantly. Against this underlying slowing of the economy, asset values have continued to appreciate as Australian investors follow world trends and pump money into equities and property in the search for yield. A growing number of overseas research houses and investment banks are expressing concern that Australian investment portfolios are overexposed to expensive assets and any future crisis would hit hard.

It is against this mixed background that the RBA has to cautiously operate to promote growth, yet not fuel the search for yield. With general economic activity slowing, inflation looking subdued and a lower dollar positive for economic growth, it appears more a case of when to cut rates , rather than whether to cut. Indeed, the interest rate futures market sees the cash rate below 2% from mid-2015 and into 2016.