In his latest note, AMP Chief Economist Shane Oliver gave seven reasons to expect more RBA rate cuts:
1. The latest rate cut means that just three of the 13 rate hikes between May 2022 and November 2023 which totalled 4.25% have been reversed. For mortgage payments it will reverse another $1260 of the $16,800 increase in annual payments on a $660,000 mortgage since May 2022. Or a total saving of $3780, which only reverses 23% of the increase in payments between May 2022 and November 2023.
2. Partly reflecting this, the outlook for consumer spending remains subdued. Evidence from the banks, national accounts and various consumer surveys suggest that mortgage holders are saving the bulk of their interest rate savings by maintaining their monthly mortgage payments for now.
3. Weak consumer demand will likely in turn constrain business investment.
4. While unemployment at 4.3% remains historically low it appears to be resuming its gradual rising trend, forward looking jobs indicators are softening and so the risks are on the upside. What’s more there remains no sign of a wages breakout with wages growth down from its 2023 high.
5. The cash rate is still above most of the RBA’s estimates of the neutral rate which averaged around 2.8% as at May when the RBA last published it.
6. Underlying inflation in Australia is in line with or below that in the Eurozone and Canada both of which have rates well below the RBA’s cash rate.
7. While the tariff threat to global and hence Australian growth receded with Trump pausing the tariffs in April, the average tariff on US imports following latest US announcements is still 6 or 7 times greater than last year’s level. So, Trump’s trade war is still going to be a drag on global and hence Australian economic growth.
