Residential property prices could surge 15% if the Reserve Bank is forced to cut rates in response to falling oil prices impacting the US economy, a prominent economist warns.
Matthew Peter, Queensland Investment Corporation’s chief economist says the plunge in world oil prices has the potential to push the US economy into deflation this year, which would prompt the Federal Reserve to defer a tightening cycle to 2016.
“The
RBA (Reserve Bank of Australia) would have to offset that and cut rates quickly – to 1.25 per cent for a quarter before raising it to 1.5 per cent – but cannot hold them there for very long due to the extreme impact it would have on the housing market,”
Fairfax quotes QIC chief economist Matthew Peter.
“It would give a 15 per cent lift to housing prices.”
Any delay in the US raising interest rates would cause a sharp rise in the Australian dollar. According to
Fairfax, Peter said it could see the dollar head back up to US81 cents. The inflated Australian dollar has already been under close watch by the Reserve Bank over the past year.
According to a previous report published by the Queensland Investment Corporation in December last year, Australia is expected to avoid deflation due to falling oil prices, but would “still experience a sharp drop in inflation to an annual rate of 1.6% in the September quarter of 2015”.
However, according to the Australian Institute of Petroleum released this week, the national average Australian price petrol rose by 6.9 cents per litre last week to 119.5 cents a litre. Prices have risen by almost 11 cents a litre in the past fortnight.
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