With 50-basis-point cut expectations, nine economists expect lowest cash rate since late 1950s

With 50-basis-point cut expectations, nine economists expect lowest cash rate since late 1950s
With 50-basis-point cut expectations, nine economists expect lowest cash rate since late 1950s

Nine out of 27 economists polled by Bloomberg expect the cash rate to fall to 2.75% in the first three months of 2012, the lowest it would be for RBA data going back to June 1959.

The RBA does not meet in January, so this would mean a further RBA cash rate cut in either February or March, assuming the RBA, as expected, cuts the cash rate on Melbourne Cup Day to 3%.

For data going back to January 1990, the lowest the cash rate has been 3%, from April 2009 to October 2009, following big cuts by the RBA to temper the emergency effects of the GFC.

Prior to 1990 the Reserve Bank did not publish an official cash rate setting,  but historical proxy data going back to June 1959 shows the cash rate fell to its previous lowest point of 2.89% in January 1960.

The expectation of the cash rate reaching a 52-year low was pointed out by Business Spectator columnist and economist Stephen Koukoulas last week.

Among the economists tipping the cash rate to fall to 2.75% in the first quarter of 2013 is Westpac chief economist Bill Evans, who is the first economist to correctly tip the RBA to begin cutting the cash rate in November last year.

In an economic update published last week following the release of the October RBA minutes, Evans indicated there was still scope for at least another 50 basis points of rate cuts, starting with one in November.

He said Westpac assesses that "the current policy stance while clearly in the stimulatory zone is still only around 70 basis points below neutral.

"Previous easing cycles have bottomed out in the 125-150 basis point range below neutral," said Evans.

Aside from Evans and Koukoulas,  the seven other economist tipping the cash rate to fall to 2.75% in either February or March are economists from London-based research consultancy 4Cast Ltd, French bank BNP Paribas, Citi, investment banks J.P. Morgan, Merrill Lynch and RBC Capital Markets and RBS  Equities (Royal Bank of Scotland).

Photograph courtesy of Flickr.

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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