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Wednesday, December 03 2014

Deutsche Bank economists have tipped the RBA will cut rates by half a percentage point in 2015.

The cuts would take the cash rate from current historic lows to 2%.

The Deutsche Bank economists previously forecast rates steady until at least mid-2016.

They forecast the first rate cut late in the June 2015 quarter and then again late in the September quarter, or early in the next quarter.

Higher unemployment prompted the Deutsche Bank forecast given they expect unemployment to peak at around 6.75% in 2015, up from 6.2% now, levels that would “ordinarily be consistent with interest rate reductions”.

“What has prevented us, until now, from actually forecasting rate cuts has been the strength in the housing market – in particular house price growth and the degree of investor activity,” the report said.

The recent “nascent signs” of easing in housing market price growth and prospect of regulatory measures to improve the quality of lending should ease the RBA's concerns, they added.

“As always, there are risks to any economist’s view,” they reported.

“In this case the key risks would appear to be a stronger labour market that we expect, or an absence of moderation in parts of the housing market. Obviously, a much weaker AUD could also, in the absence of further declines in the terms of trade, negate the need for rate cuts.”

The DB chief economist Adam Boyton believes the strength in the housing market that has been supporting the economy is easing.

"When we combine that with our expectations for the unemployment rate - which is that it will rise all the way through next year - all that suggests to us that there is scope for the RBA to cut rates further," he told ABC News.

But both the RBA and APRA will want to see more house price data before they are satisfied that house price growth has slowed to a more sustainable pace, Phil O’Donaghoe, at Deutsche Bank, told The Wall Street Journal.

Posted by: Greg Carroll AT 09:00 am   |  Permalink   |  Email