Westpac still expects three more RBA cash rate cuts by end of the year

Larry SchlesingerDecember 8, 2020

Westpac is sticking with its forecast of three more rate cuts before the end of the year, taking the cash rate to 2.75% but says the RBA will need a low quarterly inflation update – due on July 27 - to move back onto its easing path.

The bank expects a 25-basis-point rate cut in August, another one in September and one more in December.

“With borrowing rates still only described as  ‘a little below their medium-term averages’, and given the range of economic threats associated with the global economy, a high Australian dollar, and cautious business and households, our view is that rates need to go down further,” says Westpac senior economist Huw McKay.

“However, our reading of today’s statement indicates that on the basis of information currently to hand, the RBA would prefer to stay on hold and assess the impact of the ‘material easing’ it has already delivered.

“For the bank to move back onto an easing path in the short term, it will need more than an accommodative (low) inflation update later this month.

“It will need further evidence of weak global growth and a rise in financial tensions; and further proof that there has been an intensification of precautionary behaviour by firms and households at home. That is a high threshold to reach within four weeks, but recent history has shown that confidence can unravel extremely quickly.”

McKay says the latest statement reveals the bank to be “far more relaxed on the domestic economy” and has a more positive outlook on international markets.

“On the international front, whereas in June the governor assessed that ‘financial market sentiment has deteriorated’; that ‘spreads have increased’ and ‘long term interest rates faced by highly rated sovereigns have fallen to exceptionally low levels’ he now notes that ‘Financial markets have initially responded positively to signs of further progress towards longer-term sustainability in European financial affairs ...’ while ‘Capital markets remain open to corporations and well-rated banks’,” says McKay.

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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