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Published 05 October 2012 05:16, Updated 08 October 2012 05:47
AMP Capital’s Shane Oliver suggests the Reserve Bank of Australia could have to cut the nation’s official cash rate a further 0.75 of a per cent to stimulate the broader economy. Photo: Louie Douvis
Standard variable mortgage rates will need to fall to 6 per cent to sufficiently stimulate the non-mining economy, meaning the Reserve Bank will slash a further 0.75 per cent from the official cash rate to get it down to 2.5 per cent, predicts AMP Capital chief economist Shane Oliver.
Oliver’s welcome scenario for the mortgaged class might seem like jumping the gun – after all at press time no major bank had passed on any of Tuesday’s 0.25 per cent cash rate cut, and were unlikely to before the weekend given they’ve averaged 10.6 days to pass on rate cuts since this easing cycle started in November 2011.
However, he is confident that a 2.5 per cent official cash rate will transpire, as the mining boom fades while the $A remains strong and the federal government pursues a 3 per cent fiscal contraction so it can return to surplus in 2012.
“Post-GFC caution has likely resulted in a reduction in the neutral level for bank lending rates, such that they are only just now starting to become stimulatory,” Oliver says.