Mark Bouris tips three rate cuts in 2012

The Reserve Bank is likely to cut interest rates a further three times this year, Yellow Brick Road executive chairman Mark Bouris has forecast.

Three rate cuts of 25 basis points each would take the cash rate to 3.5%, with the RBA’s monetary policy committee next scheduled to meet on February 7.

The last time the cash rate was at or below 3.5% was in February 2009, when the RBA cut the rate by 100 basis points from 4.25% to 3.25% to stimulate recovery following the GFC.

Most economists, including Westpac chief economist Bill Evans, are forecasting two more rate cuts this year.

But Bouris believes both global economic troubles and local factors will force the RBA’s hand further.

“I don’t like to spread negative sentiment, but a number of factors have been presenting themselves that suggest we’re in for a rough ride and that the RBA will have to look at cutting official interest rates in the first six months of the year,” he writes in the Sunday Telegraph.

“I am picking as many as three rates by the RBA before Christmas.”

On the global front, Bouris points to last week’s warning by the World Bank that the sovereign debt crisis in Europe could tip the world economy into a second GFC.

In the local banking sector, he notes predictions by investment bank UBS that 7,000 banking jobs will go due to the slowest growth in lending in Australia since WW II.

ANZ has already announced that it will lay off 900 staff, and today Toyota says it will cut 350 jobs from its Altona plant.

The other local data Bouris says is pointing to three rate cuts are a 2.6% drop in job ads in December, with 29,000 jobs lost (though the unemployment rate has held steady at 5.2%), stagnant housing finance up just 0.2% between October and November and little movement in property prices of late.

“Yet while we’re starting to see many indicators of a flat economy, flat housing, low credit growth, a drop in job advertisements, we also have reasonably high inflation, which suggests an overheating economy.

“The Reserve Bank’s web site says inflation is now at 3.5% well above the Reserve’s own guidelines of keeping it at 2% to 3%... the result of what they call the two-speed economy.”

This, he says, creates a “conundrum” for the RBA.

Bouris says the RBA would usually raise the cash rate to cool inflation, but says it now has a “broader mandate than simply controlling inflation”.

“The RBA’s three mandated roles are stability of the currency; maintenance of full employment; and the economy prosperity and welfare of the people of Australia.

“I don’t believe that with the current global and domestic weaknesses the cash rate can be kept at settings that control inflation while hurting the general welfare of the people,” he says.

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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