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The Advertiser
21-05-2025
- Business
- The Advertiser
Rate cuts, recession a risk on Trump's 'rollercoaster'
Australia is well placed to avoid a recession, even if Donald Trump's trade war takes a turn for the worse, the treasurer says. Forecasts released by the Reserve Bank of Australia on Tuesday painted a bleak picture of the economic blowback from a scenario in which the world descends into all-out tariff wars. "Uncertainty" was cited 132 times in the central bank's quarterly economic update, with forecasters forced to wargame different scenarios to help guide the board's decision-making in an era of heightened volatility. "It's been a complete rollercoaster," Ms Bullock said of the US president's ever-changing tariff pronouncements. The bank had been "completely blown out of the water by the scale and the scope" of the trade shock, she said, conceding there was an outside chance Australia could tip into a recession if the bank's worst fears came to fruition. Treasurer Jim Chalmers assured Australians that an economic downturn was unlikely. "In fact, the revised Reserve Bank forecasts that they released yesterday have growth stronger next year than this year, and so do our own Treasury forecasts," he told ABC News Breakfast on Wednesday. "And so our expectation is that our economy will continue to grow and that growth will strengthen next year." Australia was in a unique position of having inflation back on target, at the same time as the economy was growing and unemployment was low, Dr Chalmers said. "What that means is we are well placed and well prepared for this global economic uncertainty, which is coming from decisions taken in Washington, DC, but also from a slowing Chinese economy and conflict in other parts of the world." Despite the global uncertainty, mortgage holders can be consoled by the promise of more rate cuts this year if the Reserve Bank's baseline forecast is correct and inflation and the economy grow more slowly than previously expected. There was little doubt about the RBA's decision to slash the cash rate by 25 points to 3.85 per cent on Tuesday. Markets had fully priced in the central bank's second interest rate reduction of 2025 ahead of its board meeting, given inflation was back in its two to three per cent target band as a global trade war threatens the economy. And futures market traders were even more certain of further cuts after Ms Bullock's revelations that the board considered a bumper 50 basis point cut. NAB chief economist Sally Auld was alone in predicting a 50 basis point cut ahead of the meeting. While that didn't happen, a repricing following Ms Bullock's revelation sent a "jolt" through the market, which did not expect the board to be so dovish, Ms Auld said. "I think that unnerved a few people who weren't expecting it," she told NAB's Morning Call podcast. Following the announcement, the market is pricing in almost three more cuts before the end of the year, which Ms Bullock did not push back against, unlike after the board's first move down in February. Monetary policy was still restrictive, meaning the RBA had leeway to cut the rate further if inflation continues to ease, Ms Bullock said. But the glide path down depends on developments overseas. While it was a "confident cut", Ms Bullock said future moves were uncertain. In the bank's worst-case scenario forecast, in which all countries including Australia retaliate with higher tariffs, inflation would fall to the bottom of the RBA's target band. That would necessitate more rate cuts than the baseline scenario of three more by early 2026. But in a more optimistic scenario, where tariffs are lowered to 2024 levels, inflation would remain higher, meaning fewer rate cuts. Australia is well placed to avoid a recession, even if Donald Trump's trade war takes a turn for the worse, the treasurer says. Forecasts released by the Reserve Bank of Australia on Tuesday painted a bleak picture of the economic blowback from a scenario in which the world descends into all-out tariff wars. "Uncertainty" was cited 132 times in the central bank's quarterly economic update, with forecasters forced to wargame different scenarios to help guide the board's decision-making in an era of heightened volatility. "It's been a complete rollercoaster," Ms Bullock said of the US president's ever-changing tariff pronouncements. The bank had been "completely blown out of the water by the scale and the scope" of the trade shock, she said, conceding there was an outside chance Australia could tip into a recession if the bank's worst fears came to fruition. Treasurer Jim Chalmers assured Australians that an economic downturn was unlikely. "In fact, the revised Reserve Bank forecasts that they released yesterday have growth stronger next year than this year, and so do our own Treasury forecasts," he told ABC News Breakfast on Wednesday. "And so our expectation is that our economy will continue to grow and that growth will strengthen next year." Australia was in a unique position of having inflation back on target, at the same time as the economy was growing and unemployment was low, Dr Chalmers said. "What that means is we are well placed and well prepared for this global economic uncertainty, which is coming from decisions taken in Washington, DC, but also from a slowing Chinese economy and conflict in other parts of the world." Despite the global uncertainty, mortgage holders can be consoled by the promise of more rate cuts this year if the Reserve Bank's baseline forecast is correct and inflation and the economy grow more slowly than previously expected. There was little doubt about the RBA's decision to slash the cash rate by 25 points to 3.85 per cent on Tuesday. Markets had fully priced in the central bank's second interest rate reduction of 2025 ahead of its board meeting, given inflation was back in its two to three per cent target band as a global trade war threatens the economy. And futures market traders were even more certain of further cuts after Ms Bullock's revelations that the board considered a bumper 50 basis point cut. NAB chief economist Sally Auld was alone in predicting a 50 basis point cut ahead of the meeting. While that didn't happen, a repricing following Ms Bullock's revelation sent a "jolt" through the market, which did not expect the board to be so dovish, Ms Auld said. "I think that unnerved a few people who weren't expecting it," she told NAB's Morning Call podcast. Following the announcement, the market is pricing in almost three more cuts before the end of the year, which Ms Bullock did not push back against, unlike after the board's first move down in February. Monetary policy was still restrictive, meaning the RBA had leeway to cut the rate further if inflation continues to ease, Ms Bullock said. But the glide path down depends on developments overseas. While it was a "confident cut", Ms Bullock said future moves were uncertain. In the bank's worst-case scenario forecast, in which all countries including Australia retaliate with higher tariffs, inflation would fall to the bottom of the RBA's target band. That would necessitate more rate cuts than the baseline scenario of three more by early 2026. But in a more optimistic scenario, where tariffs are lowered to 2024 levels, inflation would remain higher, meaning fewer rate cuts. Australia is well placed to avoid a recession, even if Donald Trump's trade war takes a turn for the worse, the treasurer says. Forecasts released by the Reserve Bank of Australia on Tuesday painted a bleak picture of the economic blowback from a scenario in which the world descends into all-out tariff wars. "Uncertainty" was cited 132 times in the central bank's quarterly economic update, with forecasters forced to wargame different scenarios to help guide the board's decision-making in an era of heightened volatility. "It's been a complete rollercoaster," Ms Bullock said of the US president's ever-changing tariff pronouncements. The bank had been "completely blown out of the water by the scale and the scope" of the trade shock, she said, conceding there was an outside chance Australia could tip into a recession if the bank's worst fears came to fruition. Treasurer Jim Chalmers assured Australians that an economic downturn was unlikely. "In fact, the revised Reserve Bank forecasts that they released yesterday have growth stronger next year than this year, and so do our own Treasury forecasts," he told ABC News Breakfast on Wednesday. "And so our expectation is that our economy will continue to grow and that growth will strengthen next year." Australia was in a unique position of having inflation back on target, at the same time as the economy was growing and unemployment was low, Dr Chalmers said. "What that means is we are well placed and well prepared for this global economic uncertainty, which is coming from decisions taken in Washington, DC, but also from a slowing Chinese economy and conflict in other parts of the world." Despite the global uncertainty, mortgage holders can be consoled by the promise of more rate cuts this year if the Reserve Bank's baseline forecast is correct and inflation and the economy grow more slowly than previously expected. There was little doubt about the RBA's decision to slash the cash rate by 25 points to 3.85 per cent on Tuesday. Markets had fully priced in the central bank's second interest rate reduction of 2025 ahead of its board meeting, given inflation was back in its two to three per cent target band as a global trade war threatens the economy. And futures market traders were even more certain of further cuts after Ms Bullock's revelations that the board considered a bumper 50 basis point cut. NAB chief economist Sally Auld was alone in predicting a 50 basis point cut ahead of the meeting. While that didn't happen, a repricing following Ms Bullock's revelation sent a "jolt" through the market, which did not expect the board to be so dovish, Ms Auld said. "I think that unnerved a few people who weren't expecting it," she told NAB's Morning Call podcast. Following the announcement, the market is pricing in almost three more cuts before the end of the year, which Ms Bullock did not push back against, unlike after the board's first move down in February. Monetary policy was still restrictive, meaning the RBA had leeway to cut the rate further if inflation continues to ease, Ms Bullock said. But the glide path down depends on developments overseas. While it was a "confident cut", Ms Bullock said future moves were uncertain. In the bank's worst-case scenario forecast, in which all countries including Australia retaliate with higher tariffs, inflation would fall to the bottom of the RBA's target band. That would necessitate more rate cuts than the baseline scenario of three more by early 2026. But in a more optimistic scenario, where tariffs are lowered to 2024 levels, inflation would remain higher, meaning fewer rate cuts. Australia is well placed to avoid a recession, even if Donald Trump's trade war takes a turn for the worse, the treasurer says. Forecasts released by the Reserve Bank of Australia on Tuesday painted a bleak picture of the economic blowback from a scenario in which the world descends into all-out tariff wars. "Uncertainty" was cited 132 times in the central bank's quarterly economic update, with forecasters forced to wargame different scenarios to help guide the board's decision-making in an era of heightened volatility. "It's been a complete rollercoaster," Ms Bullock said of the US president's ever-changing tariff pronouncements. The bank had been "completely blown out of the water by the scale and the scope" of the trade shock, she said, conceding there was an outside chance Australia could tip into a recession if the bank's worst fears came to fruition. Treasurer Jim Chalmers assured Australians that an economic downturn was unlikely. "In fact, the revised Reserve Bank forecasts that they released yesterday have growth stronger next year than this year, and so do our own Treasury forecasts," he told ABC News Breakfast on Wednesday. "And so our expectation is that our economy will continue to grow and that growth will strengthen next year." Australia was in a unique position of having inflation back on target, at the same time as the economy was growing and unemployment was low, Dr Chalmers said. "What that means is we are well placed and well prepared for this global economic uncertainty, which is coming from decisions taken in Washington, DC, but also from a slowing Chinese economy and conflict in other parts of the world." Despite the global uncertainty, mortgage holders can be consoled by the promise of more rate cuts this year if the Reserve Bank's baseline forecast is correct and inflation and the economy grow more slowly than previously expected. There was little doubt about the RBA's decision to slash the cash rate by 25 points to 3.85 per cent on Tuesday. Markets had fully priced in the central bank's second interest rate reduction of 2025 ahead of its board meeting, given inflation was back in its two to three per cent target band as a global trade war threatens the economy. And futures market traders were even more certain of further cuts after Ms Bullock's revelations that the board considered a bumper 50 basis point cut. NAB chief economist Sally Auld was alone in predicting a 50 basis point cut ahead of the meeting. While that didn't happen, a repricing following Ms Bullock's revelation sent a "jolt" through the market, which did not expect the board to be so dovish, Ms Auld said. "I think that unnerved a few people who weren't expecting it," she told NAB's Morning Call podcast. Following the announcement, the market is pricing in almost three more cuts before the end of the year, which Ms Bullock did not push back against, unlike after the board's first move down in February. Monetary policy was still restrictive, meaning the RBA had leeway to cut the rate further if inflation continues to ease, Ms Bullock said. But the glide path down depends on developments overseas. While it was a "confident cut", Ms Bullock said future moves were uncertain. In the bank's worst-case scenario forecast, in which all countries including Australia retaliate with higher tariffs, inflation would fall to the bottom of the RBA's target band. That would necessitate more rate cuts than the baseline scenario of three more by early 2026. But in a more optimistic scenario, where tariffs are lowered to 2024 levels, inflation would remain higher, meaning fewer rate cuts.
The Advertiser
19-05-2025
- Business
- The Advertiser
'A given': rate cut to bring mortgage relief
Home owners can expect more mortgage relief if the Reserve Bank cuts interest rates as widely expected but those looking to break into the housing market could see property prices rise even higher. Traders are pricing in a 95 per cent chance the RBA board will cut its key interest rate to 3.85 per cent when its two-day meeting wraps up on Tuesday. Nicola Powell, chief economist at property portal Domain, said it's pretty much a given. Underlying inflation moderated to 2.9 per cent in the first three months of the year, which will reassure the RBA that they can take some restrictiveness out of the economy. Meanwhile, Donald Trump's tariffs bolster the case for a cut to support the economy amid an anticipated global slowdown. "Obviously, it's going to be at the forefront of their mind, the impacts that that is going to have on the domestic economy," Dr Powell told AAP. "When you look at trimmed mean inflation, it's now within their (target) band (of two to three per cent). And we know that the RBA likes to really be guided by that trimmed mean inflation." Most economists agree that the central bank will cut rates by 25 basis points. That would result in the median mortgage-holder with a $600,000 debt having to pay about $90 less per month in interest repayments, assuming the banks pass it on in full. Dr Powell said she would be surprised if they didn't, given competition among the banks for customer retention and acquisition of new loans was high. NAB remains an outlier in calling for a 50 basis point cut, although the likelihood of that happening now has diminished following an easing in trade tensions between the US and China and strong domestic labour market data, NAB's head of FX strategy Ray Attrill concedes. "We're still very convicted in the view that the case for policy remaining restrictive has fast disappeared, it's in the rear view mirror as far we're concerned," he told NAB's Morning Call podcast. "Therefore, to get rates down to something closer to neutral will require the best part of 100 basis points of cuts." If the RBA does slash rates by 100 basis points - or 75 as the market is predicting - by year's end, house prices are likely to surge. Increased borrowing capacity for home buyers will cause demand to rise, and with the provision of new supply still hampered by high construction costs and planning bottlenecks, prices will follow, Dr Powell said. Even before the cut is passed through to buyers, higher confidence already shows up in stronger demand. "In the lead up to the first rate cut that occurred in February, we were already starting to see an improvement in sentiment coming from inquiry data," Dr Powell said. And that is likely to flow through quicker in the more expensive capital city markets like Sydney and Melbourne, which are more sensitive to changes in interest rates, she said. A model developed at the Reserve Bank by economists Trent Saunders and Peter Tulip, now at the Centre for Independent Studies, found interest rates falling one percentage point lifts home prices six per cent higher in the first year than they otherwise would've been. Home owners can expect more mortgage relief if the Reserve Bank cuts interest rates as widely expected but those looking to break into the housing market could see property prices rise even higher. Traders are pricing in a 95 per cent chance the RBA board will cut its key interest rate to 3.85 per cent when its two-day meeting wraps up on Tuesday. Nicola Powell, chief economist at property portal Domain, said it's pretty much a given. Underlying inflation moderated to 2.9 per cent in the first three months of the year, which will reassure the RBA that they can take some restrictiveness out of the economy. Meanwhile, Donald Trump's tariffs bolster the case for a cut to support the economy amid an anticipated global slowdown. "Obviously, it's going to be at the forefront of their mind, the impacts that that is going to have on the domestic economy," Dr Powell told AAP. "When you look at trimmed mean inflation, it's now within their (target) band (of two to three per cent). And we know that the RBA likes to really be guided by that trimmed mean inflation." Most economists agree that the central bank will cut rates by 25 basis points. That would result in the median mortgage-holder with a $600,000 debt having to pay about $90 less per month in interest repayments, assuming the banks pass it on in full. Dr Powell said she would be surprised if they didn't, given competition among the banks for customer retention and acquisition of new loans was high. NAB remains an outlier in calling for a 50 basis point cut, although the likelihood of that happening now has diminished following an easing in trade tensions between the US and China and strong domestic labour market data, NAB's head of FX strategy Ray Attrill concedes. "We're still very convicted in the view that the case for policy remaining restrictive has fast disappeared, it's in the rear view mirror as far we're concerned," he told NAB's Morning Call podcast. "Therefore, to get rates down to something closer to neutral will require the best part of 100 basis points of cuts." If the RBA does slash rates by 100 basis points - or 75 as the market is predicting - by year's end, house prices are likely to surge. Increased borrowing capacity for home buyers will cause demand to rise, and with the provision of new supply still hampered by high construction costs and planning bottlenecks, prices will follow, Dr Powell said. Even before the cut is passed through to buyers, higher confidence already shows up in stronger demand. "In the lead up to the first rate cut that occurred in February, we were already starting to see an improvement in sentiment coming from inquiry data," Dr Powell said. And that is likely to flow through quicker in the more expensive capital city markets like Sydney and Melbourne, which are more sensitive to changes in interest rates, she said. A model developed at the Reserve Bank by economists Trent Saunders and Peter Tulip, now at the Centre for Independent Studies, found interest rates falling one percentage point lifts home prices six per cent higher in the first year than they otherwise would've been. Home owners can expect more mortgage relief if the Reserve Bank cuts interest rates as widely expected but those looking to break into the housing market could see property prices rise even higher. Traders are pricing in a 95 per cent chance the RBA board will cut its key interest rate to 3.85 per cent when its two-day meeting wraps up on Tuesday. Nicola Powell, chief economist at property portal Domain, said it's pretty much a given. Underlying inflation moderated to 2.9 per cent in the first three months of the year, which will reassure the RBA that they can take some restrictiveness out of the economy. Meanwhile, Donald Trump's tariffs bolster the case for a cut to support the economy amid an anticipated global slowdown. "Obviously, it's going to be at the forefront of their mind, the impacts that that is going to have on the domestic economy," Dr Powell told AAP. "When you look at trimmed mean inflation, it's now within their (target) band (of two to three per cent). And we know that the RBA likes to really be guided by that trimmed mean inflation." Most economists agree that the central bank will cut rates by 25 basis points. That would result in the median mortgage-holder with a $600,000 debt having to pay about $90 less per month in interest repayments, assuming the banks pass it on in full. Dr Powell said she would be surprised if they didn't, given competition among the banks for customer retention and acquisition of new loans was high. NAB remains an outlier in calling for a 50 basis point cut, although the likelihood of that happening now has diminished following an easing in trade tensions between the US and China and strong domestic labour market data, NAB's head of FX strategy Ray Attrill concedes. "We're still very convicted in the view that the case for policy remaining restrictive has fast disappeared, it's in the rear view mirror as far we're concerned," he told NAB's Morning Call podcast. "Therefore, to get rates down to something closer to neutral will require the best part of 100 basis points of cuts." If the RBA does slash rates by 100 basis points - or 75 as the market is predicting - by year's end, house prices are likely to surge. Increased borrowing capacity for home buyers will cause demand to rise, and with the provision of new supply still hampered by high construction costs and planning bottlenecks, prices will follow, Dr Powell said. Even before the cut is passed through to buyers, higher confidence already shows up in stronger demand. "In the lead up to the first rate cut that occurred in February, we were already starting to see an improvement in sentiment coming from inquiry data," Dr Powell said. And that is likely to flow through quicker in the more expensive capital city markets like Sydney and Melbourne, which are more sensitive to changes in interest rates, she said. A model developed at the Reserve Bank by economists Trent Saunders and Peter Tulip, now at the Centre for Independent Studies, found interest rates falling one percentage point lifts home prices six per cent higher in the first year than they otherwise would've been. Home owners can expect more mortgage relief if the Reserve Bank cuts interest rates as widely expected but those looking to break into the housing market could see property prices rise even higher. Traders are pricing in a 95 per cent chance the RBA board will cut its key interest rate to 3.85 per cent when its two-day meeting wraps up on Tuesday. Nicola Powell, chief economist at property portal Domain, said it's pretty much a given. Underlying inflation moderated to 2.9 per cent in the first three months of the year, which will reassure the RBA that they can take some restrictiveness out of the economy. Meanwhile, Donald Trump's tariffs bolster the case for a cut to support the economy amid an anticipated global slowdown. "Obviously, it's going to be at the forefront of their mind, the impacts that that is going to have on the domestic economy," Dr Powell told AAP. "When you look at trimmed mean inflation, it's now within their (target) band (of two to three per cent). And we know that the RBA likes to really be guided by that trimmed mean inflation." Most economists agree that the central bank will cut rates by 25 basis points. That would result in the median mortgage-holder with a $600,000 debt having to pay about $90 less per month in interest repayments, assuming the banks pass it on in full. Dr Powell said she would be surprised if they didn't, given competition among the banks for customer retention and acquisition of new loans was high. NAB remains an outlier in calling for a 50 basis point cut, although the likelihood of that happening now has diminished following an easing in trade tensions between the US and China and strong domestic labour market data, NAB's head of FX strategy Ray Attrill concedes. "We're still very convicted in the view that the case for policy remaining restrictive has fast disappeared, it's in the rear view mirror as far we're concerned," he told NAB's Morning Call podcast. "Therefore, to get rates down to something closer to neutral will require the best part of 100 basis points of cuts." If the RBA does slash rates by 100 basis points - or 75 as the market is predicting - by year's end, house prices are likely to surge. Increased borrowing capacity for home buyers will cause demand to rise, and with the provision of new supply still hampered by high construction costs and planning bottlenecks, prices will follow, Dr Powell said. Even before the cut is passed through to buyers, higher confidence already shows up in stronger demand. "In the lead up to the first rate cut that occurred in February, we were already starting to see an improvement in sentiment coming from inquiry data," Dr Powell said. And that is likely to flow through quicker in the more expensive capital city markets like Sydney and Melbourne, which are more sensitive to changes in interest rates, she said. A model developed at the Reserve Bank by economists Trent Saunders and Peter Tulip, now at the Centre for Independent Studies, found interest rates falling one percentage point lifts home prices six per cent higher in the first year than they otherwise would've been.
Perth Now
19-05-2025
- Business
- Perth Now
'A given': rate cut to bring mortgage relief
Home owners can expect more mortgage relief if the Reserve Bank cuts interest rates as widely expected but those looking to break into the housing market could see property prices rise even higher. Traders are pricing in a 95 per cent chance the RBA board will cut its key interest rate to 3.85 per cent when its two-day meeting wraps up on Tuesday. Nicola Powell, chief economist at property portal Domain, said it's pretty much a given. Underlying inflation moderated to 2.9 per cent in the first three months of the year, which will reassure the RBA that they can take some restrictiveness out of the economy. Meanwhile, Donald Trump's tariffs bolster the case for a cut to support the economy amid an anticipated global slowdown. "Obviously, it's going to be at the forefront of their mind, the impacts that that is going to have on the domestic economy," Dr Powell told AAP. "When you look at trimmed mean inflation, it's now within their (target) band (of two to three per cent). And we know that the RBA likes to really be guided by that trimmed mean inflation." Most economists agree that the central bank will cut rates by 25 basis points. That would result in the median mortgage-holder with a $600,000 debt having to pay about $90 less per month in interest repayments, assuming the banks pass it on in full. Dr Powell said she would be surprised if they didn't, given competition among the banks for customer retention and acquisition of new loans was high. NAB remains an outlier in calling for a 50 basis point cut, although the likelihood of that happening now has diminished following an easing in trade tensions between the US and China and strong domestic labour market data, NAB's head of FX strategy Ray Attrill concedes. "We're still very convicted in the view that the case for policy remaining restrictive has fast disappeared, it's in the rear view mirror as far we're concerned," he told NAB's Morning Call podcast. "Therefore, to get rates down to something closer to neutral will require the best part of 100 basis points of cuts." If the RBA does slash rates by 100 basis points - or 75 as the market is predicting - by year's end, house prices are likely to surge. Increased borrowing capacity for home buyers will cause demand to rise, and with the provision of new supply still hampered by high construction costs and planning bottlenecks, prices will follow, Dr Powell said. Even before the cut is passed through to buyers, higher confidence already shows up in stronger demand. "In the lead up to the first rate cut that occurred in February, we were already starting to see an improvement in sentiment coming from inquiry data," Dr Powell said. And that is likely to flow through quicker in the more expensive capital city markets like Sydney and Melbourne, which are more sensitive to changes in interest rates, she said. A model developed at the Reserve Bank by economists Trent Saunders and Peter Tulip, now at the Centre for Independent Studies, found interest rates falling one percentage point lifts home prices six per cent higher in the first year than they otherwise would've been.
West Australian
19-05-2025
- Business
- West Australian
'A given': rate cut to bring mortgage relief
Home owners can expect more mortgage relief if the Reserve Bank cuts interest rates as widely expected but those looking to break into the housing market could see property prices rise even higher. Traders are pricing in a 95 per cent chance the RBA board will cut its key interest rate to 3.85 per cent when its two-day meeting wraps up on Tuesday. Nicola Powell, chief economist at property portal Domain, said it's pretty much a given. Underlying inflation moderated to 2.9 per cent in the first three months of the year, which will reassure the RBA that they can take some restrictiveness out of the economy. Meanwhile, Donald Trump's tariffs bolster the case for a cut to support the economy amid an anticipated global slowdown. "Obviously, it's going to be at the forefront of their mind, the impacts that that is going to have on the domestic economy," Dr Powell told AAP. "When you look at trimmed mean inflation, it's now within their (target) band (of two to three per cent). And we know that the RBA likes to really be guided by that trimmed mean inflation." Most economists agree that the central bank will cut rates by 25 basis points. That would result in the median mortgage-holder with a $600,000 debt having to pay about $90 less per month in interest repayments, assuming the banks pass it on in full. Dr Powell said she would be surprised if they didn't, given competition among the banks for customer retention and acquisition of new loans was high. NAB remains an outlier in calling for a 50 basis point cut, although the likelihood of that happening now has diminished following an easing in trade tensions between the US and China and strong domestic labour market data, NAB's head of FX strategy Ray Attrill concedes. "We're still very convicted in the view that the case for policy remaining restrictive has fast disappeared, it's in the rear view mirror as far we're concerned," he told NAB's Morning Call podcast. "Therefore, to get rates down to something closer to neutral will require the best part of 100 basis points of cuts." If the RBA does slash rates by 100 basis points - or 75 as the market is predicting - by year's end, house prices are likely to surge. Increased borrowing capacity for home buyers will cause demand to rise, and with the provision of new supply still hampered by high construction costs and planning bottlenecks, prices will follow, Dr Powell said. Even before the cut is passed through to buyers, higher confidence already shows up in stronger demand. "In the lead up to the first rate cut that occurred in February, we were already starting to see an improvement in sentiment coming from inquiry data," Dr Powell said. And that is likely to flow through quicker in the more expensive capital city markets like Sydney and Melbourne, which are more sensitive to changes in interest rates, she said. A model developed at the Reserve Bank by economists Trent Saunders and Peter Tulip, now at the Centre for Independent Studies, found interest rates falling one percentage point lifts home prices six per cent higher in the first year than they otherwise would've been.
New Statesman
29-04-2025
- Politics
- New Statesman
How much trouble are the Tories in?
Photo byThe real competition as far as Labour and the Conservatives are concerned this week, with Thursday's local elections looming, is not about winning votes or council seats but lowering expectations. Neither of the two main parties is going to have a particularly fun night. From Labour, the message is that governments are always punished in 'mid-term' locals (ignore for a moment the fact that ten months after a historic landslide victory can't really be considered 'mid-term') as voters take the opportunity to give whoever is in charge back in Westminster a good kicking. For the Conservatives, expectation management involves reminding everyone, as Kemi Badenoch put it, that the party 'always knew that this election was going to be a challenge' because of just how well the party did last time these seats were fought. 'Well' is an understatement: reaping the benefits of Boris Johnson's vaccine rollout popularity, the Tories won two-thirds of all seats up for election in 2021. Four years later, they are in the unenviable position of defending 973 seats – which means 973 chances for defeat. Current polls suggest the Tories would be lucky to cling on to half of these. Losses of over 500 are being priced in. Over the weekend it emerged that Tory campaign director Rachel Maclean has been on holiday in the Himalayas. Good for her – and a good opportunity for CCHQ to take the 'we lost because we didn't bother trying' strategy to a whole new level. As George Eaton wrote in Morning Call yesterday, much of the pressure comes from the Liberal Democrats – especially in erstwhile Tory heartlands like Buckinghamshire, Cambridgeshire, Oxfordshire, and even Warwickshire, where Ed Davey has his eyes on shifting the council from Conservative majority to no overall control. Indeed, the Lib Dems are hoping to leapfrog the Tories and come out of the local elections second only to Labour in terms of running councils. Yet for all that, it isn't Ed Davey that is haunting the Conservatives' waking moments, but – of course – Nigel Farage. Ben Houchen, Tees Valley mayor and the most powerful elected Conservative in the country, is the latest to muse openly about the potential for a deal between the Tories and Reform at the next general election: 'Obviously there's going to be a conversation to form a coalition or some sort of pact' if the two parties were to win enough MPs combined to form a majority, Houchen told the BBC. It's true that Houchen was referring to a deal after the next general election, once the votes have been counted. But other Tories have other ideas and have been more blatant in their pleas to 'unite the right'. Houchen's comments come days after Robert Jenrick, shadow justice secretary and successor-in-waiting to Kemi Badenoch, was revealed to have said he was determined 'one way or another' to 'bring this coalition together'. And it's only been a few weeks since Esther McVey mooted the possibility of Reform and the Tories agreeing not to stand against one another in certain seats – as the Brexit Party stood down in Conservative-held seats for Boris Johnson in 2019. As I wrote last week, Reform figures have gleefully rejected any suggestion they could get into bed with the Tories. It is in Farage's interest to do so – as it cements his narrative that Reform is the alternative to the so-called 'uniparty', with Labour and the Conservatives two sides of the same coin (or 'two cheeks of the same arse,' to borrow a phrase of fellow political disruptor George Galloway). Seeming keen to make a deal could be ruinous for Reform's anti-establishment image. Subscribe to The New Statesman today from only £8.99 per month Subscribe The Tories pushing the idea of a pact are counting on Farage's opportunism, sure that the Reform leader would be open to changing his mind if the situation could be shown to work in his favour. And Farage has this week thrown them a (sort-of) bone by saying Reform will be 'grown-ups' about what they do after the election in terms of co-operating on councils. He did add, however, that any deal would be 'on tough terms'. The Tories pushing the pact line consider it inherently logical that the right must be united in order to defeat Labour (note Houchen's use of the word 'obviously', for example). But any pollster will tell you that hopefully tallying up Reform and Tory votes to reach a number that looks on the surface like an achievable goal for a united right is wildly deluded. While there clearly is overlap, much of Reform's appeal comes from the fact that Farage hasn't been in Westminster for the last decade and a half overseeing the country's decline. There is another problem with the pact talk: it makes the Conservatives look desperate. On Monday, More In Common director Luke Tryl (the man behind last week's Chaotic Map Of Doom) shared an insight from his focus groups that should terrify the Conservatives: all the talk of a merger has voters thinking 'you can tell they're struggling because now they're trying to get in with Reform'. The Tories are not projecting the image of a party that is calm and in control. Voters pick up on weakness. And no one likes voting for weak parties. The one glimmer the Tories can hang onto is that on the expectation setting front, they are crushing Reform – as, incidentally, is Labour. Excitable Reform activists are bigging up their prospects to anyone who will listen, whether it's Andrea Jenkyns winning the Lincolnshire mayoralty or the chances of taking the supposedly safe Labour seat of Runcorn and Helsby in the by-election. There has been so much over-egging of a Reform landslide, in fact, that a performance that is anything less than exceptional – not winning Runcorn, say, or failing to translate vote share into council seats – risks looking like a disappointment for Farage. Maybe Kemi Badenoch has something to teach him after all. [See also: Mark Carney enters the arena] Related
