Economists have warned that residential property prices in Australia could spike by 15% if the Reserve Bank (RBA) is forced to cut rates to below 1.25% in response to US moves to defer raising interest rates.
The USA may delay raising interest rates if sustained low oil prices look likely push the American economy into deflation later this year, says Queensland Investment Corporation.
“The RBA would have to offset that and cut rates quickly – to 1.25% for a quarter before raising it to 1.5% – but cannot hold them there for very long due to the extreme impact it would have on the housing market,” says QIC chief economist Matthew Peter. “It would give a 15% lift to housing prices.”
The RBA recently cut rates recently to 2.25% and most economists expected another cut to 2% over the next month or two. If it did not respond to any US delay in increasing interest rates, this would lead to the Australian dollar being forced sharply higher against its US counterpart.