The weakening global economic outlook has prompted ANZ to slash its forecast for the official cash rate to a new low point of 3.50% towards the end of 2009.
ANZ is expecting the Reserve Bank to cut rates by 0.50% at the December meeting and then return to the normal operating mode of 0.25% rate adjustments.
"We expect further rate cuts through the first half of 2009 in response to weak economic growth and rising employment," it said in its report.
Financial markets are expecting a 1% rate cut in December, a further 0.50% in February and a low of somewhere between 3.50% and 3.75% in March.
"While we expect the RBA to ultimately deliver on current market expectations, we are of the view that it will take much longer than current pricing suggests," ANZ said.
The RBA revised its economic forecast and now expects the economy to grow by 1.5% in 2008/09, down from its previous forecast of 2.25% set three months ago.
"Falling interest rates, increased homeowner grants and a housing undersupply are positives for house prices," said Shane Oliver, chief economist with AMP Capital Investors. "It's argued that the fall in the mortgage rates of nearly 2% since September combined with increased first homebuyer grants will spur an upswing in Australian house prices."
Source: Your Mortgage Magazine 13/11/2008
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