The potential for lower interest rates has put a spring in Nia Pandoulis’s step.
She runs Soult Australia, based in Sydney, selling clothing and accessories for the warmer months of the year.
“We create things that you would take to Europe, you would take to the beach, you would take to that holiday,” she said.
A cheaper cost of borrowing money will help Nia Pandoulis’s business, and her customers. (Supplied: Nia Pandoulis)
Ms Pandoulis juggled a full-time job with her fashion side hustle and hoped lower interest rates would help transform it into a larger business.
“I think lower interest rates would help us as businesses, and our customers,”
Ms Pandoulis said.
“I think our consumers would have a lot more confidence in what they’re buying and what they’re looking to buy.
“And we, as a business, would benefit without those additional costs.
“If we want to grow and get ourselves out there in that market, we would really benefit from [lower interest rates].”
All eyes on Tuesday
Ms Pandoulis is among millions of Australians hoping for interest rate relief this week.
The Reserve Bank is widely tipped to drop interest rates by a quarter of a percentage point to 3.6 per cent on Tuesday, and all big four banks are now forecasting a quarter of a percentage point cut to the cash rate.
According to interest rate comparison website Mozo, this means owner-occupier borrowers with a $500,000 mortgage could save $76 a month, or $918 over a year, on their home loan repayments.
This is based on the average variable home loan rate of 6.15 per cent per annum in the Mozo database for owner-occupiers, paying principal and interest with an 80 per cent loan-to-value ratio.
Economists say lower inflation and gathering global economic storm clouds are supporting the case for a Tuesday interest rate cut.
“It looks like a no-brainer that the Reserve Bank’s going to cut the cash rate again at its July board meeting,” AMP deputy chief economist Diana Mousina said.
“The cash rate is currently at 3.85 per cent. There’s more than a 90 per cent chance priced into financial markets … that we will see that cut to 3.6 per cent.”
Diana Mousina says a July interest rate cut looks like a no-brainer for the Reserve Bank. (Supplied: Paul Pandoulis)
Ms Mousina said AMP expected several interest rate cuts to follow later this year.
“We do think that the Reserve Bank is going to keep cutting interest rates,”
she said.Aiming for ‘the sweet spot’
In the statement accompanying the RBA’s May interest rates decision, the RBA’s Monetary Policy Board noted “a severe downside scenario”.
“[It] noted that monetary policy is well placed to respond decisively to international developments if they were to have material implications for activity and inflation in Australia,” the statement said.
Ms Mousina said a major financial market correction was possible, which would further support the central bank’s case for looser monetary policy.
“There is the possibility that we get another market meltdown,”
she said.
“And given that the starting point is already share markets at a record high around the world, increased risk of volatility, investor uneasiness and uncertainty about future economic and trade policy, particularly from the US, you’d have to say there’s a very big risk that markets may fall by 10 per cent or 15 per cent.”
Do I need to contact my bank after the rate cut?
AMP forecasts as many as four RBA interest rate cuts by early next year.
“So we’re looking for another four rate cuts at least in the cycle, three of those to take place over the rest of this year,”
Ms Mousina said.
“And then one in early 2026.
“That means that we’re expecting the cash rate to reach a bottom of 2.85 per cent, and that’s close to our estimate of where we think the neutral level of interest rates is.
“That’s the sweet spot that the Reserve Bank wants to reach.”
Others not so sure of cuts
The “neutral level” of interest rates is where the Reserve Bank perceives total demand in the economy equals supply, and there is no upward or downward pressure on price growth for goods and services.
Other economists are not so confident the Reserve Bank will drop interest rates.
Sherman Chan thinks the Reserve Bank may wait for the June quarter CPI data before deciding on a rate cut. (ABC News: Dan Irvine)
Independent economist Sherman Chan thought the Reserve Bank might wait until August.
“The Reserve Bank has made it pretty clear that the quarterly CPI series is their preferred measure [of inflation], so there is a chance they may wait until the June quarter CPI data before they decide,” she said.
“That would be in August.”
Lower rates send property higher
Whether or not the Reserve Bank lowers interest rates on Tuesday, it is likely the central bank will lower interest rates further in the months to come.
That is potentially disappointing for Australians looking to get a foot on the property ladder.
“Since rates started to decline, we’ve seen cities like Sydney, Melbourne, Brisbane and Perth up more than 2 per cent,” said Cotality’s head of research Eliza Owen.
“[Also] Adelaide almost up 2 per cent, but the biggest benefactor has been Darwin — up 6 per cent.”
Property prices, she said, could go higher as interest rates fall.
History is repeating and house prices are set to rise — again
“It’s pretty likely that if you see a reduction in interest rates, you’re going to see an increase in housing values,” Ms Owen said.
“A reduction in interest rates is kind of like a price cut on the cost of debt.
“So that increases the maximum people can borrow for mortgages, and that means property values usually move higher.”
It is a bitter pill for Nia Pandoulis, who is hoping to be able to buy a property at some point in the future.
“I do want a home one day,” she said.
Nia Pandoulis thinks the reality of owning a home in Sydney is getting “pushed further and further out”. (ABC News: Dan Irvine)
“Especially for our generation, we’ve already got our HECS debts, we’re already indebted from our 20s, and then we’re working full-time jobs, and maybe we’re starting up businesses.
“So the prospect of a home is really not on the cards right now.
“As someone in Sydney, I think the reality is that it would get pushed further and further out, and I would like to stay where I grew up.”
The Reserve Bank will announce its decision on interest rates Tuesday at 2:30pm AEST.