“Our forecasts for GDP growth and inflation are more downbeat than the consensus. What’s more, banks have raised mortgage rates in response to higher funding costs,” Mr Thieliant wrote. “As growth weakens, the RBA may want to offset higher bank lending rates by reducing the cash rate.
“We now expect the RBA to cut interest rates to 1.25 per cent by the end of the year and to 1 per cent by the middle of 2020. Those forecasts are more dovish than what is priced into the markets.”
Informing the Capital economist’s view is the state of the housing market, where he sees the downturn intensifying.
“The experience from housing downturns in other advanced economies is that central banks nearly always end up cutting policy rates,” he said. Capital expects prices in the capital cities to drop 15 per cent from their peak making the current downturn the longest and deepest on record.
from A Viral Update http://bit.ly/2ASXmFI
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