Four more cash rate cuts still possible in current cycle: Macquarie Group's Brian Redican

The Reserve Bank could cut the cash rate another four times in the current rate-cutting cycle, according to Macquarie Group senior economist Brian Redican.

Redican made this observation while speaking at the Real Estate Institute of Victoria’s (REIV) Commercial & Industrial Economic Forecast Luncheon on Friday.

They followed a question from luncheon host, Peter Switzer, who asked if he and BIS Shrapnel chief economist Frank Gelber (also speaking at the luncheon) agreed with former Gillard government economic adviser Stephen Koukoulas and soon to be Business Spectator commentator that four more rate cuts are likely.

Koukoulas is tipping a cash rate cut of 2.75% by year end and one more in the first quarter of 2013, taking the cash rate to 2.5%.

Redican says while the mining boom is driving the economy other parts are struggling.

“Housing construction could rise a little bit in 2013, but it’s not going to be a major driver of growth.

“And the other thing we have seen is a lot of white-collar unemployment… and the reason that’s important is that they are your potential investors in the property market."

As a result, Redican says you won’t get the pick-up in growth, meaning the RBA will have keep doing what it has done over the past 12 months is “stepping in and very begrudgingly and reluctantly” cutting rates, otherwise the economy will take another turn down.

But Gelber disagreed, and expects just one more interest rate cut in the cycle – and not in August – unless things turn sour.

“Interest rates take awhile to work their magic on the housing market and the economy and we think the RBA will sit back and wait."

However, if things do turn “sour” Gelber says the RBA has the fire power to act.

Redican added that he believed we may be entering into a world where monetary policy is less effective, because the structure is so different.

In their presentations both Gelber and Redican highlighted that consumers were continuing to save and that interest rate cuts were being used to pay off more of the mortgage rather than spend the money.

“The golden age of retailing has come and gone,” said Gelber.

Those readers thinking about refinancing their home loan should sign up for Property Observer’s free webinar: Refinancing and the interest rates riddle, taking place on Tuesday, 31 July a 12:30pm AEST.