Goldman Sachs: An Interest Rate Cut Is Back On The Table

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Goldman Sachs Australia has added its voice to those thinking an interest rate cut, and not a rise, could be on the cards in 2015.

Most market economists have been forecasting a tightening in monetary policy — a small rise in rates — sometime late in 2015.

But Deutsche Bank yesterday announced it now expects the RBA to cut interest rates next year by as much as 0.5 percentage points in two moves.

It based the call on a deterioration in employment and declining activity in housing.

And today Goldman Sachs Australia moved its thinking after the weaker than expected official GDP numbers.

Goldman Sachs says it is shifting its view to an interest rate reduction in 2015.

“We still think that GDP growth is on track to average 2.9% in 2014 (consensus 3.1%) and 2% in 2015 (consensus 2.9%),” says Goldman Sachs in a note to clients.

“Nevertheless, revisions to the back data and the composition of the GDP data were sufficiently poor to tilt the balance of probabilities towards a rate cut.”

The cut could come in the first half of 2015 in about March by 0.25 percentage points and again in August by 0.25.

This would bring the cash rate down to 2%, the same level forecast by Goldman Sachs.

“We expect the RBA will leave interest rates unchanged until 2Q 2016 when we expect the RBA to commence a tentative tightening cycle,” Goldman Sachs says.

Australian interest rates are at their lowest level in 60 years. The RBA hasn’t moved rates for 15 months in a row.

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