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Interest rates set to fall

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The recent softening of economic indicators has led to many economists revising their interest rate predictions. Some have said they now expect a pause in interest rate hikes when the RBA meets in June, and one expert has gone a step further and predicted that the RBA will start slashing rates as early as next month.

John Edwards, CEO of Residex, argued that the case for a rate cut is strong due to a slew of poor data.

"The housing finance numbers indicate a slowdown; the housing growth in all cities other than Melbourne is starting to show 'cracks' at the margins with lower cost suburbs presenting falls in values and retail sales look to be sluggish at best and more likely slowing," he said.

Edwards also noted that the problems in Europe were flowing over into stock markets and wiping billions off portfolio values, subsequently zapping confidence. He  added that the government's "great big new tax" on the resource sector was going to unsettle people and ran the risk of diminishing employment opportunities as the resource sector held back on new projects and waited for further clarity.

"The RBA has a job that is going to get increasingly tough. We have a market that is far from uniform across Australia. They have a single 'blunt' instrument: increasing interest rates. Further, increases in rates are probably needed in the Victorian market where there is clearly a high chance of a bubble forming. Other city and country markets are less 'at risk' of this and based on the numbers, there is a serious risk that the economy in these markets could be imperilled by further rate increases."

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