Australia's most watched chief economist has finally echoed the calls of Goldman Sachs and Deutsche Bank in tipping a rate cut from the Reserve Bank of Australia, amid warnings from analysts about first homebuyers now thinking of lower rates as the new normal.
Bill Evans of Westpac said the RBA would need to cut the cash rate by 0.5 percentage points in the months after Christmas in order to increase domestic demand and pull down the Australian dollar, the Sydney Morning Herald
Evans expects the RBA to cut rates by 25 basis points in February and again in March prior to another period of stability.
Analysts on Monday said that the Australian dollar would need to dip to take the pressure off the RBA to cut rates in 2015.
However, JP Morgan economist Ben Jarman argued consumers who believe low rates are now the norm would be a problem for the RBA.
"Their chief argument has been that it's not interest rates that are the problem, it's a lack of what the governor is calling 'animal spirit'; a lack of willingness for people to use those low interest rates to undertake productive investment," he said.
Rate City product director Peter Arnold shares the concern.
"Historically speaking we're far from normal. The general talk is that rates will stay low for a long time, but a home loan is around for an even longer time," he said.
"Even if rates stay low for five years, no one pays off a mortgage in five years. It's very important first home buyers don't factor their overall borrowing amount on current repayments."
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