Australia Markets close in 5 hrs 40 mins

Shane Oliver says the next move in the RBA cash rate will be down, not up

David Scutt

AMP Capital's Chief Economist Shane Oliver has seen enough.

Following Australia's weak Q3 GDP report released today, he now thinks the Reserve Bank of Australia (RBA) will cut rates again... eventually.

He explains:

Given the combination of falling house prices, tightening credit conditions and constrained growth, which will keep wages growth weak and inflation below target, we are changing our view on the RBA from being one of rates on hold out to second half of 2020 to now seeing the next move being a rate cut.

However, with the RBA still seeing the next move as being up it will take them a while to change their thinking so we don’t see rates being cut until second half next year. When it does start cutting the RBA will likely stick to 0.25% increments, and since rate moves are a bit like cockroaches, there is likely to be more than one.

Previously, Stephen Koukoulas of Market Economics was the only economist surveyed by Bloomberg who was forecasting that the next move in the cash rate would be down, not up.

In recent months, policymakers at the RBA have stated that the next in official interest rates was likely to be higher.

Financial markets are still clinging onto the idea that the next move in the cash rate will be up, although a full 25 basis point increase isn't priced in until the second half of 2020.

And that was before today's GDP growth undershoot.

NOW READ: 'Risks are on the downside': Why Australia's housing downturn could see the RBA cut rates again2>