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HSBC anticipates more cuts to cash rate

Date: 06/02/2012

A cut to the cash rate tomorrow may be followed by two further reductions in the first half of 2012, according to economists at HSBC.

The bank’s global research publication, The RBA Observer, anticipates that the cash rate will be cut by 25 basis points when the Reserve Bank of Australia’s monetary policy committee meets tomorrow (February 7) for the first time since the beginning of the year.

Slow global growth and lingering unease about the financial situation in Europe, as well as the easing labour market, set a perfect stage for a cut tomorrow that is in line with the two reductions made by the committee in November and December last year.

A further two cuts to the cash rate are expected to be made within the first half of 2012, HSBC predicts.

New housing activity will be boosted by a slashed cash rate, according to the Housing Industry Association’s chief economist Harley Dale.

However, the full effects of any cuts will only be felt if they are passed on by the banks in full.

Rate cuts also need to be supported by government measures, Dr Dale said, which should also provide stimulus to new home building.

This statement was also echoed by Peter Jones, chief economist at Master Builders Australia, who called for lower interest rates in a move to boost confidence in the property market.

Speaking last Thursday (February 2), Jones said: “With the immediate challenge to restore confidence and drive a private sector recovery, the building industry is banking on further rate cuts to help boost confidence and stabilise an uncertain market.”

“Master Builders Australia believes that the November and December rate cuts by themselves won’t be enough and calls on the Reserve Bank to lower rates next week to reignite activity in the building industry.”

Profile photo of Steve McKnight

By Steve McKnight

Steve McKnight, the founder of PropertyInvesting.com, is a respected property investing authority as well as Australia's #1 best-selling business author.

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