Goldman Sachs: Two More Interest Rate Cuts in Australia


The Reserve Bank of Australia may cut its interest rate twice this 2016. This was the forecast by the well-known Australian economist, Tim Toohey. He is the chief economist for Goldman Sachs Australia.

Goldman’s revised outlook on Aussie,s interest rates stems from the dismal job market report of January. The Australian Bureau of Statistics had reported a sharp slide in the job market with unemployment rate surging up to 6 percent.

“Since November we have ascribed a 45 percent probability that the RBA would reduce interest rates again this cycle,” Toohey noted.  The Sydney Morning Herald reported  that job growth in 2015 was overstated according to Toohey.

According to the economist, “approximately half of the employment growth over the past year is questionable.”

The Goldman’s new forecast takes note of multiple pressure points on the economy. They include low inflation, globally falling interest rates, higher mortgage rates and the pressure on Australian dollar.

“Events of the past two weeks, together with our analysis of the labour market data and the earlier tightening in financial conditions, have led us to conclude that the probability of further easing now clearly exceeds 50 percent,” the economist further added.

It is now looking certain that any further weakness in the job data may force the RBA’s hand. The apex bank in the past had said a seemingly strong job market under a subdued economy was puzzling.

The ANZ Bank also made a forecast about two further rate cuts in 2016. It cited slowing jobs growth as one reason. The bank also said a weaker housing market is another matter of concern.

Meanwhile, Australian dollar faced more downslide pressure against other major currencies on Thursday. This was in the aftermath of the disappointing jobs report as noted by the RTT News.

The job data said Australian economy lost 7,900 jobs in January. This was despite an expected increase of 13,000 jobs. The data said full-time employment decreased to 8,185,800 while part-time employment surged to 3,708,700.

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