Brace for rate cuts in 2016

Soft global growth will likely force the Reserve Bank of Australia to cut interest rates early next year, potentially taking the official cash rate to 1.5 per cent.

"ANZ expects the RBA to cut interest rates by a further 50 basis points at some point in early 2016."
Warren Hogan, ANZ Chief Economist

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ANZ expects the RBA to cut interest rates by a further 50 basis points at some point in early 2016. While timing is tricky, February and March are the likely candidates.  

Two factors are likely to drive the change – waning support to non-mining sectors of the Australian economy from the housing market and continuing weakness in the Australian dollar internationally.

RBA governor Glenn Stevens has previously said  growth in the non-mining economy needs to be above average for a couple of years to eat into spare capacity. This is currently around average at best with little likelihood of improving. At the same time mining investment has much further to fall.

A lack of sufficient global growth in 2016 and 2017 will also be a factor. Earlier this month, ANZ lowered its growth forecasts for this period.

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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