More and more analysts are now predicting that the RBA is set to cut rates with 40% predicting that the first for the year may come as early tomorrow when the Central Bank announces their first interest rate decision for the year.
One of the biggest names advocating for a rate cut is renowned business reporter Terry McCrann who’s report last week predicted that the RBA will almost certainly cut rates tomorrow or at a minimum signal their intentions to do so in the nearest future.
Guest Post by Andrew Masters from FiboGroup
The RBA, for best part of last year took the stance of keeping a sustained stability in interest rates but McCrann noted that times have changed since then and that Central Bank governor Glenn Stevens will need to take a different course of action,
“After every meeting last year, Stevens had said that a “period of stability” for rates was best. Indeed that form of words had been adopted at exactly this same meeting at the start of last year”.
“Those words meant that the rate was unlikely to be cut at future meetings. But it also meant the rate would not be hiked “” as some economists had been either predicting or demanding”.
“Or at least they were, through the first half of 2014, before joining all the other economists on the “rate cut” side of the forecasting ship, as both the domestic and global environments turned increasingly gloomy”.
The Inflation outlook for Australia this year remains weak with Mcrrann writing that economic growth in the coming year will remain sluggish forcing the RBA’s hand on interest rates,
“Now the RBA will reveal it not only sees the prospect of Australia returning to trend growth pushed out to 2016 at best, but that growth will be sluggish through 2015. It will make its first point-forecast for growth in the year to June, at 2 or 2.25 per cent; and it will cut the end-year growth range to 2-3 per cent”.
“Critically, on (underlying) inflation, the RBA will also make its first point-forecast for June. It is likely to be 2.25 per cent, it could be as low as 2 per cent “” either way, significantly, very significantly, below the 2.5 per cent midpoint of its 2-3 per cent target range”.
Australia’s biggest commodity, iron ore suffered further losses last week hitting a low of $US62.70 a tonne ,its lowest level since 2009.
Analysts from Goldman sachs have now jumped on board with other Investment banks and downgraded the price of iron ore this year to $US66.00 a tonne down from $US80.00 a tonne just a few months ago.
Even with prices in free fall big companies like Rio Tinto plan to increase production this year, putting pressure on smaller miners which will hopefully stifle competition and lead to less competitors in the market, especially from China and Canada.
Goldman Sachs analyst Christian Lelong noted that we can expect significant mine closures as iron ore continues to flood the market and demand in China begins to slowdown,
“Significant overinvestment to date will ensure that the market is well supplied, while demand from the Chinese steel sector is maturing. A painful war of attrition awaits” the iron ore industry as less competitive mines shut”.
Share
