Housing market to guide RBA's hand: AB

Housing market to guide RBA's hand: AB

The Reserve Bank of Australia is likely to cut interest rates at least once in 2017, and further cuts will depend on how “disorderly” the housing market becomes, says AllianceBernstein.


Australian economic growth improved throughout November, largely thanks to higher commodity prices, said AllianceBernstein (AB) in its latest Global Economic Outlook.

The improvement has helped to assuage downside fears about the Australian economy, said the report – but low levels of inflation (and wage growth) have justified the RBA's easing bias in the latter half of 2016.

The appreciation of the Australian dollar throughout 2016 has added to the deflation of traded goods, said AB.

The stronger growth numbers, along with housing-related worries about financial stability, ought to keep the RBA on the sidelines.

But that inaction could be short-lived, with AB's baseline scenario envisaging an RBA rate cut in 2017.

Further cuts are contingent upon how disorderly the housing adjustments become. In our view there will be enough stress evident in that sector in 2017 to justify another cut or two, said AB.

 

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