2 Dec 2014
Change of call: RBA to cut rates by 50bps in 2015 - DB
FXStreet (Bali) - Deutsche Bank has revised its call for the RBA interest rate outlook, now expecting the RBA to cut 25bps in late Q2 2015, with a further 25bp easing in late Q3 / early Q4 2015.
Key Quotes
"After forecasting in early November 2013 that the cash rate would remain at 2.50% all through 2014, 2015 and H1-2016, we have in recent months been highlighting the risk of lower interest rates in 2015."
"Indeed, our expectation of an increase in the unemployment rate over 2015 to a peak of ~6.75% would, in our view, ordinarily be consistent with interest rate reductions. (We expect the unemployment rate to rise on account of below potential real GDP growth, a sizeable decline in the terms of trade, and the capital intensive nature of GDP growth driven in considerable part by mining and energy exports.)"
"What has prevented us, until now, from actually forecasting rate cuts has been the strength in the housing market - in particular house price growth and the degree of investor activity."
"On the latter, the Bank (and APRA) has signalled in recent months that measures will be introduced before the end of the year to ensure that the quality of lending to investors remains high. While authorities have stressed (in particular the RBA Governor in a recent speech) that any such measures will not be designed to restrict the quantity of lending, we expect that at the margin any lift in investment lending standards will 'tilt' the balance a little in favor of owner occupiers and away from investors relative to the status quo."
"On the price side, it appears that house price growth across a range of sources is moderating from levels seen late last year. These nascent signs of moderation in house price growth and the likelihood of some 'macro-pru-lite' to cool the investor segment of the housing market, combined with our forecast for the unemployment rate to move higher through 2015 and on-going declines in commodity prices, have led us to change our view on the cash rate."
Key Quotes
"After forecasting in early November 2013 that the cash rate would remain at 2.50% all through 2014, 2015 and H1-2016, we have in recent months been highlighting the risk of lower interest rates in 2015."
"Indeed, our expectation of an increase in the unemployment rate over 2015 to a peak of ~6.75% would, in our view, ordinarily be consistent with interest rate reductions. (We expect the unemployment rate to rise on account of below potential real GDP growth, a sizeable decline in the terms of trade, and the capital intensive nature of GDP growth driven in considerable part by mining and energy exports.)"
"What has prevented us, until now, from actually forecasting rate cuts has been the strength in the housing market - in particular house price growth and the degree of investor activity."
"On the latter, the Bank (and APRA) has signalled in recent months that measures will be introduced before the end of the year to ensure that the quality of lending to investors remains high. While authorities have stressed (in particular the RBA Governor in a recent speech) that any such measures will not be designed to restrict the quantity of lending, we expect that at the margin any lift in investment lending standards will 'tilt' the balance a little in favor of owner occupiers and away from investors relative to the status quo."
"On the price side, it appears that house price growth across a range of sources is moderating from levels seen late last year. These nascent signs of moderation in house price growth and the likelihood of some 'macro-pru-lite' to cool the investor segment of the housing market, combined with our forecast for the unemployment rate to move higher through 2015 and on-going declines in commodity prices, have led us to change our view on the cash rate."