Out of cycle interest rate rises could cause RBA to make a move

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Moves by Australia’s major lenders to increase their home loan interest rates independently of the Reserve Bank of Australia could be an important factor at the central bank’s board meeting next week.

According to an economist at one of the major banks, the interest rate rises could result in the RBA cutting the official cash rate below the 2% it sits at now.

“Yes, it certainly increases the chances of a rate cut before Christmas,” Commsec economist Savanth Sebastian told Australian Broker.

“If anything, the Reserve Bank will now discuss the merits of another rate cut to support growth,” Sebastian said.

Sebastian told Australian Broker that the moves by the major lenders could indicate to the RBA that there has been a tightening of economic conditions and that some stimulus is needed.

“The national environment still remains relatively patchy and it may be that the Reserve Bank provides a degree of stimulus in the lead up to Christmas,” Sebastian told Australian Broker.

The RBA meets on Melbourne Cup Day next week and that meeting has been circled by some for a long time as the day the cash rate could drop.

In early September, AMP chief economist Shane Oliver told Fairfax that Cup Day was the likely date the RBA would reduce the cash rate if they believed it needed to happen.

“On balance, the RBA will be forced to cut interest rates again. The reason is the economy is continuing to run at a very sub-par pace,” he said.

“I think if it’s going to come, it will probably be November.”
 

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