The RBA’s rate cuts are beginning to affect the Australian economy, according to analysis from T. Rowe Price.
Randal Jenneke, head of Australian Equities at T. Rowe Price, believes that the RBA’s successive cuts have paid off.
“There are already signs that RBA rate cuts are starting to gain traction and stimulate the economy,” Mr Jenneke said in a note.
“The benefit of lower interest rates is most visible in Australia’s housing sector, which had until recently been in mild recession. Auction clearance rates in Sydney and Melbourne have nearly doubled, while home prices have risen by 5 to 10 per cent, depending on which region.”
Mr Jenneke cited the “wealth effect” from residential property to consumer demand, operating with a lag of about six to 12 months.
“As long as the improving trends in housing continue, we should start to see a positive impact on consumer spending by the middle of 2020.”
Mr Jenneke believes the RBA will cut rates one more time, saying 50 bps is likely to be “the effective floor of the cash rate”. He also forecasts more fiscal stimulus in addition to tax rebates and $4 billion infrastructure package announced in November.
“We believe there is greater political advantage for the government from fiscal easing than from maintaining a conservative stance in order to post a large public sector financial surplus in FY19/20,” Mr Jenneke said.
“The government surplus in FY19/20 on current budget projections could be as much as $10 billion-$15 billion, thanks in part to a budget assumption for the price of iron ore that now looks far too conservative.”
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