Australia’s central bank will reduce its key interest rate next year as unemployment rises, Deutsche Bank AG said, breaking ranks with its major counterparts. Policy makers will lower the cash rate by a quarter percentage point in the second quarter and another quarter point late in the third or early in the fourth quarter to 2 percent, Chief Economist Adam Boyton said in a research report. His view is in line with money markets that are pricing in an 80 percent chance the Reserve Bank of Australia will cut rates.
“An increase in the unemployment rate over 2015 to a peak of about 6.75 percent would, in our view, ordinarily be consistent with interest rate reductions,” Boyton said. “What has prevented us, until now, from actually forecasting rate cuts has been the strength in the housing market.”
Plans by Australian regulators to implement measures that cool lending to real estate investors, along with moderating house-price growth, prompted the change of call, Boyton said. House prices in Australia’s major cities slipped 0.3 percent last month, private data released yesterday showed.