Westpac’s Bill Evans and HSBC’s Paul Bloxham favour November rate cut – AMP’s Shane Oliver sticks with October

The minutes of the September 4 monetary policy meeting indicate the RBA is moving closer to cutting the cash rate, but both Westpac chief economist Bill Evans and HSBC’s Paul Bloxham still favour a November rate cut.

Earlier today ANZ changed its forecast from a November rate cut to an October easing and even countenanced a 50-basis-point rate cut in one hit.

Examining the September RBA board minutes, Evans says Westpac believes the RBA is “close to moving on rates but, in a close call does not assess that there is sufficient evidence from these minutes to revise our view that the cuts are likely in November and December”

Evans focused on the term "scope to adjust policy" deeming it to be “quite important”.

“The condition required for policy to adjust is described as ‘any significant deterioration in the outlook for growth’.

“That definition can be used quite flexibly to justify a rate cut,” he says.

“For example, the ‘high level of the exchange rate’ might be assessed as significantly  affecting the outlook for growth, or a bigger than expected fall in the terms of trade might also fall into that category.

“In short, because the condition refers to the outlook rather than the actual level of growth, there is a high degree of subjectivity involved.

“The commentary links this view to further falls in iron ore prices. For the moment these appear to have stabilised, but the outlook remains volatile.”

HSBC Australia and New Zealand chief economist Paul Bloxham says the bank still expect one more cut before year-end, probably in November, though October can't be ruled out.

He says the “tone” of the minutes suggest the RBA remains “seemingly fairly comfortable, having gotten rates down in May and June to below average”.

“However, the minutes do give a stronger suggestion that the RBA does have a conditional easing bias and that this is largely dependent on global conditions, particularly conditions in China,” says Bloxham.

“Locally, growth was close to trend and they reiterated that they are still yet to see the full effects of the previous cuts working their way through the economy. However, there are some hints in the minutes about some concern that the labour market could have eased a bit in the past couple of months.”

But he says global conditions present the main downside risk.

“There was further acknowledgement that the RBA has scope to lower rates if the global economy weakens further” says Bloxham with a fair bit more time spent “articulating the Chinese slowdown story”.

Unless there are signs of an upturn in China, Bloxham says the RBA has scope to ease policy further.

But as observed by Bill Evans, Bloxham says an easing bias is conditional on RBA assessing there to have been a 'significant deterioration' in the outlook for growth.

AMP Capital chief economist Shane Oliver, along with Market Economics’ Stephen Koukoulas and BNP Paribas’s senior Asia economist Dominic Bryant were the only three economists to back a rate cut in October when surveyed by Bloomberg last Friday.

Today, Oliver remained adamant that an October rate cut is on the cards saying the September minutes revealed a "somewhat more dovish tone than indicated by the post meeting statement released straight after the meeting, with significant discussion regarding the risks to global growth and China in particular, the risks to the mining boom and even the observation that the benign inflation outlook provides scope to ease policy if needed”.

“We remain of the view that the RBA will cut the cash rate to 2.75% over the next six months, starting with a 0.25% rate cut next month," says Oliver.

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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