AMP Capital’s Head of Investment Strategy and Chief Economist Shane Oliver believes that all signs point to an August rate cut by the Reserve Bank, pushing the official cash rate to a new low.
In his Switzer Daily column, Oliver compared New Zealand’s low inflation outcome and looming rate cut to Australia’s current economy, saying that this might be a sign of things to come. The Reserve Bank indicated in its last meeting that it was waiting on further information on inflation, the labour market, and the housing market before it decides on the official rates.
“Since it has described the labour market and the housing market as ‘mixed,’ and recent data on both suggest no reason to change that assessment, the implication from the RBA is that should we see another low inflation reading when the June quarter CPI numbers are released on Wednesday, it’s likely that the RBA will cut the cash rate from 1.75 per cent to 1.5 per cent on August 2,” Oliver said.
He expects another low inflation reading on Wednesday, despite the prospect of a 0.4 per cent quarter-on-quarter increase due to high petrol prices and a seasonal rise in health costs.
“June credit data is likely to show that credit growth remains moderate with the stock of lending to property investors continuing to show slower growth,” Oliver said.